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Official Dollarization in Latin America: Could it Work?

Author

Listed:
  • Paul Hallwood

    (University of Connecticut)

  • Ian W. Marsh

    (City University Business School)

  • Jorg Scheibe

    (University of Oxford)

Abstract

We investigate the case for official dollarization in a selection of Latin American countries. We argue that the monetary shock absorbers of base control, foreign exchange reserve sterilization and exchange rate policy should be retained the more volatile is a country's actual real exchange rate. Our investigation of the asymmetry of macroeconomic shocks between the USA and Latin America suggests that the time series property of the real exchange rate is likely to be one of such volatility that it is advisable to retain at least some monetary shock absorbers. The case for official dollarization is further weakened by the unlikelihood of international agreements to accommodate Federal Reserve management of the dollar base to Latin American requirements.

Suggested Citation

  • Paul Hallwood & Ian W. Marsh & Jorg Scheibe, 2001. "Official Dollarization in Latin America: Could it Work?," Working papers 2001-06, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2001-06
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    References listed on IDEAS

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    9. Calvo, Guillermo A, 2001. "Capital Markets and the Exchange Rate with Special Reference to the Dollarization Debate in Latin America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 312-334, May.
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    Cited by:

    1. Cruz-Rodríguez, Alexis, 2005. "Ciclos Económicos Sincronizados y Uniones Monetarias en Centroamérica y la República Dominicana [Business Cycles Synchronisation and Monetary Union in Central American and the Dominican Republic]," MPRA Paper 72104, University Library of Munich, Germany.

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    More about this item

    Keywords

    dollarization; exchange rate regimes; monetary policy; Latin America.;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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