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Macroeconomic Fluctuations and Deposit Dollarization in Sub-Saharan Africa: Evidence from Panel Data

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  • Yinusa, D. Olalekan

Abstract

The role played by macroeconomic fluctuations in stimulating deposit dollarization in developing countries have been a subject of intense debate in the last few decades especially in Latin America and transition economies of Eastern Europe with little attention on African economies. Apart from this, most of the studies on African economies are country case studies with little scope for generalisation. This article examines the effect of macroeconomic fluctuations on deposit dollarization in 18 selected Sub-Saharan Africa for the period 1980 to 2004. Using the standard money demand model accounting for dollarization in small open economies, the article finds that inflation, expectations about exchange rate changes coupled with interaction between capital account restrictions and domestic inflation plays dominant roles in explaining deposit dollarization in Sub-Sahara Africa. Given the consequences of deposit dollarization on the vulnerability of the domestic banking system, lack of independent monetary policy and optimal exchange rate choices, the article concludes that macroeconomic instability must be adequately brought under control in other to reduce deposit dollarization in these economies.

Suggested Citation

  • Yinusa, D. Olalekan, 2009. "Macroeconomic Fluctuations and Deposit Dollarization in Sub-Saharan Africa: Evidence from Panel Data," MPRA Paper 16259, University Library of Munich, Germany, revised 2009.
  • Handle: RePEc:pra:mprapa:16259
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    References listed on IDEAS

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    Cited by:

    1. Asongu, Simplice & Raheem, Ibrahim & Tchamyou, Venessa, 2016. "Information Asymmetry and Financial Dollarization in Sub-Saharan Africa," MPRA Paper 77310, University Library of Munich, Germany.
    2. Raheem, Ibrahim D. & Asongu, Simplice A., 2016. "Extending the Determinants of Dollarization in Sub-Saharan Africa: The Role of Easy Access to Foreign Exchange Earnings," MPRA Paper 75415, University Library of Munich, Germany.

    More about this item

    Keywords

    Macroeconomic Fluctuations; Demand for Money; Deposit Dollarization; Panel Data and Sub-Saharan Africa;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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