Dollarization Persistence and Individual Heterogeneity
The most salient feature of financial dollarization, and the one that causes more concern to policy makers, is its persistence: even after successful macroeconomic stabilizations, dollarization ratios often remain high. In this paper we claim that this persistence is connected to the fact that the participants in the dollar deposit market are fairly heterogenous, and so is the way they form their optimal currency portfolio.We develop as simple model when agents differ in their ability to process information, which turns out to be enough to generate persistence up on aggregation. We find empirical support for this claim with data from three Latin American countries and Poland.
|Date of creation:||Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 427-6250 ext. 3841
Web page: http://www.bcrp.gob.pe
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eduardo Moron & Diego Winkelried, 2002.
"Monetary Policy Rules for Financially Vulnerable EconomieEd,"
- Moron, Eduardo & Winkelried, Diego, 2005. "Monetary policy rules for financially vulnerable economies," Journal of Development Economics, Elsevier, vol. 76(1), pages 23-51, February.
- Eduardo MorÃ³n & Diego Winkelried, 2003. "Monetary Policy Rules for Financially Vulnerable Economies," IMF Working Papers 03/39, International Monetary Fund.
- Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
- Guillermo A. Calvo & Carmen M. Reinhart, 2000.
"Fear of Floating,"
NBER Working Papers
7993, National Bureau of Economic Research, Inc.
- Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000.
"Balance Sheets and Exchange Rate Policy,"
NBER Working Papers
7840, National Bureau of Economic Research, Inc.
- Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
- Hashem Pesaran, M., 2003. "Aggregation of linear dynamic models: an application to life-cycle consumption models under habit formation," Economic Modelling, Elsevier, vol. 20(2), pages 383-415, March.
- Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416.
- Zenón Quispe, 2000.
"Monetary Policy in a Dollarized Economy: the Case of Peru,"
Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 167-206, July-Dece.
- Quispe Misaico, Zenon, 2000. "Monetary policy in a dollarised economy: The case of Peru," MPRA Paper 35530, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
"Addicted to Dollars,"
NBER Working Papers
10015, National Bureau of Economic Research, Inc.
- Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
- Arteta Carlos O., 2005. "Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Currency Mismatches in Bank Intermediation?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-30, May.
- Eduardo Levy Yeyati, 2006.
"Financial dollarization: evaluating the consequences,"
CEPR;CES;MSH, vol. 21(45), pages 61-118, 01.
- Eduardo Levy Yeyati, 2005. "Financial Dollarisation: Evaluating The Consequences," Business School Working Papers findollarisation, Universidad Torcuato Di Tella.
- Eduardo Levy-Yeyati, 2004. "FINANCIAL DOLLARIZATION: Evaluating the consequences," Econometric Society 2004 Latin American Meetings 184, Econometric Society.
- Arifovic, Jasmina, 1996. "The Behavior of the Exchange Rate in the Genetic Algorithm and Experimental Economies," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 510-41, June.
- Antonio Garcia Pascual & Jorge Cayazzo & Socorro Heysen & Eva Gutierrez, 2006. "Toward An Effective Supervision of Partially Dollarized Banking Systems," IMF Working Papers 06/32, International Monetary Fund.
- Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
- Michelacci, Claudio, 2004.
"Cross-Sectional Heterogeneity and the Persistence of Aggregate Fluctuations,"
CEPR Discussion Papers
4302, C.E.P.R. Discussion Papers.
- Michelacci, Claudio, 2004. "Cross-sectional heterogeneity and the persistence of aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1321-1352, October.
- Michelacci, C., 1999. "Cross-Sectional Heterogeneity and the Persistence of Aggregate Fluctuations," Papers 9906, Centro de Estudios Monetarios Y Financieros-.
- Uribe, Martin, 1997.
"Hysteresis in a simple model of currency substitution,"
Journal of Monetary Economics,
Elsevier, vol. 40(1), pages 185-202, September.
- Martin Uribe, 1995. "Hysteresis in a simple model of currency substitution," International Finance Discussion Papers 509, Board of Governors of the Federal Reserve System (U.S.).
- Pablo Emilio Guidotti & Carlos A. Rodriguez, 1991.
"Dollarization in Latin America: Gresham's Law in Reverse?,"
IMF Working Papers
91/117, International Monetary Fund.
- Pablo E. Guidotti & Carlos A. Rodriguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 518-544, September.
- Pablo Guidotti & Carlos A. Rodríguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," CEMA Working Papers: Serie Documentos de Trabajo. 81, Universidad del CEMA.
- Zaffaroni, Paolo, 2004. "Contemporaneous aggregation of linear dynamic models in large economies," Journal of Econometrics, Elsevier, vol. 120(1), pages 75-102, May.
- Lewbel, Arthur, 1994. "Aggregation and Simple Dynamics," American Economic Review, American Economic Association, vol. 84(4), pages 905-18, September.
- repec:rus:hseeco:123906 is not listed on IDEAS
- Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," World Bank Economic Review, World Bank Group, vol. 14(3), pages 597-605, September.
- Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.
- Agenor, Pierre-Richard & Haque, Nadeem U, 1996. "Macroeconomic Management with Informal Financial Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(2), pages 87-101, April.
- Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
- Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
- Miguel A. Savastano, 1996. "Dollarization in Latin America: Recent Evidence and Some Policy Issues," IMF Working Papers 96/4, International Monetary Fund.
- Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
- repec:rus:hseeco:124089 is not listed on IDEAS
- Cook, David, 2004. "Monetary policy in emerging markets: Can liability dollarization explain contractionary devaluations?," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1155-1181, September.
When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2007-004. 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)
If references are entirely missing, you can add them using this form.