IDEAS home Printed from https://ideas.repec.org/p/rbp/wpaper/2006-010.html
   My bibliography  Save this paper

Financial Dollarization, the portfolio approach and expectations: evidence for Latin America (1995-2005)

Author

Listed:
  • Sanchez Alan

    () (University of Oxford, Central Bank of Peru)

Abstract

The aim of this research is to evaluate to what extent the actual level and dynamics of financial dollarization prevalent in Latin America can be explained by the portfolio approach proposed by Ize and Levi Yeyati (2003). Inasmuch as the result of a portfolio optimization is sensible to the estimation of the variance-covariance matrix, this paper considers several alternatives to estimate the expected volatility by means of historical data so as to resemble two polar cases: short-memory and long-memory adaptive expectations. The main finding is that, for the period 1995-2005, financial dollarization in Latin America can be partially explained by the MVP ratio only if long-memory of past volatility events is assumed. Additional results are reported for highly dollarized countries.

Suggested Citation

  • Sanchez Alan, 2006. "Financial Dollarization, the portfolio approach and expectations: evidence for Latin America (1995-2005)," Working Papers 2006-010, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2006-010
    as

    Download full text from publisher

    File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2006/Documento-Trabajo-10-2006.pdf
    File Function: Application/pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    2. Winkelried, Diego & Castillo, Paul, 2010. "Dollarization persistence and individual heterogeneity," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1596-1618, December.
    3. Arturo Galindo & Leonardo Leiderman, 2005. "Living with Dollarization and the Route to Dedollarization," Research Department Publications 4397, Inter-American Development Bank, Research Department.
    4. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
    5. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
    6. Mark Zelmer & Andrea Schaechter & Mark R. Stone & Alina Carare, 2002. "Establishing Initial Conditions in Support of Inflation Targeting," IMF Working Papers 02/102, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial Dollarization; persistence; Latin America;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2006-010. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Research Unit). General contact details of provider: http://edirc.repec.org/data/bcrgvpe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.