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Dollarization of Liabilities in Non-tradable Goods Sector

  • Frederic Chabellard
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    This paper questions the motivation of dollar indebtedness by firms of the non-tradable good sectors in a period of exchange rate pressure. Given the structure of banks' indebtedness and protection of banks' foreign lenders, a dollar denominated loan may allow firms to insure (partially) against the risk of an early liquidation of their projects if they turn out to be poor. Then it is shown that under dollarization of liabilities the government may be urged to soften monetary policy to induce a real appreciation that supports the domestic banking system. Therefore, it might be constrained in its ability to enforce an efficient regulatory policy.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp380.pdf
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    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 380.

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    Length: pages
    Date of creation: 01 Jun 2001
    Date of revision:
    Handle: RePEc:wdi:papers:2001-380
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    1. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2001. "Hedging and financial fragility in fixed exchange rate regimes," European Economic Review, Elsevier, vol. 45(7), pages 1151-1193.
    2. Mishkin, Frederic S., 1999. "Lessons from the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 709-723, August.
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    8. Sorm, Vit & Terrell, Katherine, 2000. "Sectoral Restructuring and Labor Mobility: A Comparative Look at the Czech Republic," IZA Discussion Papers 111, Institute for the Study of Labor (IZA).
    9. Berglof, Erik & Roland, Gerard, 1997. "Soft budget constraints and credit crunches in financial transition," European Economic Review, Elsevier, vol. 41(3-5), pages 807-817, April.
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    11. Martin Schneider & Aaron Tornell, 2000. "Balance SHeet Effects, Bailout Guarantees and Financial Crises," NBER Working Papers 8060, National Bureau of Economic Research, Inc.
    12. Robert Dekle & Kenneth Kletzer, 2002. "Domestic Bank Regulation and Financial Crises: Theory and Empirical Evidence from East Asia," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 507-558 National Bureau of Economic Research, Inc.
    13. Chong-En Bai & David D. Li & Yingyi Qian & Yijiang Wang, 1999. "Limiting Government Predation Through Anonymous Banking: A Theory with Evidence from China," William Davidson Institute Working Papers Series 275, William Davidson Institute at the University of Michigan.
    14. Ricardo J. Caballero & Arvind Krishnamurthy, 2000. "Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment," NBER Working Papers 7792, National Bureau of Economic Research, Inc.
    15. Mailath George J. & Mester Loretta J., 1994. "A Positive Analysis of Bank Closure," Journal of Financial Intermediation, Elsevier, vol. 3(3), pages 272-299, June.
    16. S.I. Boyarchenko & S.Z. Levendorskii, 2000. "Search-Money-and-Barter Models of Financial Stabilization," William Davidson Institute Working Papers Series 332, William Davidson Institute at the University of Michigan.
    17. Boeri, Tito, 2001. "Transition with Labour Supply," IZA Discussion Papers 257, Institute for the Study of Labor (IZA).
    18. Susan Linz, 2000. "Restructuring with What Success? A Case Study of Russian Firms," William Davidson Institute Working Papers Series 324, William Davidson Institute at the University of Michigan.
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