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Effect of Official Dollarization on Macroeconomic Performance and Money-Price Relationship in Ecuador

Author

Listed:
  • Selahattin Togay

    (Gazi University)

  • Bedri Kamil Onur Taþ

    (TOBB ETU)

Abstract

This paper investigates effects of official dollarization on the macroeconomic performance of Ecuador using a time series perspective. More specifically, we investigate how dollarization effects inflation, GDP, inflation uncertainty and money-price relationship in Ecuador. There are four main findings of this study. First, inflation is lower after official dollarization. Second, GDP growth is higher after official dollarization when controlling for several other factors like rising oil prices and increase in the equity markets of emerging economies. Third, inflation uncertainty measured by inflation variance through GARCH is lower during official dollarization. Finally, money supply is endogenous after official dollarization and exogenous before official dollarization. As a result, we conclude that dollarization improved the macroeconomic performance of Ecuador and changed the money-price relationship in Ecuador.

Suggested Citation

  • Selahattin Togay & Bedri Kamil Onur Taþ, 2009. "Effect of Official Dollarization on Macroeconomic Performance and Money-Price Relationship in Ecuador," Working Papers 2009/4, Turkish Economic Association.
  • Handle: RePEc:tek:wpaper:2009/4
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    More about this item

    Keywords

    Official Dollarization; Ecuador; Inflation uncertainty; GARCH model; Moneyprice relation; Endogeneity of money;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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