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Dedollarizing the Peruvian Economy

  • Eduardo Moron

    (Universidad del Pacifico)

  • Juan F. Castro

    (Universidad del Pacifico)

Financial dollarization creates design problems for economic policy as increases the level of financial vulnerability. However, countries with high levels of dollarization have done almost nothing to reduce it. In this paper we study two ways to do it and we evaluate them within a model that emphasizes a portfolio approach. We calibrate the model to replicate the Peruvian economy. The two policy options that we consider are: (i) increasing the risk of dollar deposits, reducing the level of coverage in the safety net mechanism; (ii) increasing the relative volatility of inflation vis-à-vis real depreciation. Our results show that the former has the potential risk of lowering the level of financial intermediation, whereas the second might be more effective to de-dollarize the economy.

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File URL: http://128.118.178.162/eps/mac/papers/0312/0312005.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0312005.

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Date of creation: 12 Dec 2003
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Handle: RePEc:wpa:wuwpma:0312005
Note: Type of Document - PDF; prepared on Win98; to print on Laser;
Contact details of provider: Web page: http://128.118.178.162

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  1. Christian Broda & Eduardo Levy Yeyati, 2003. "Endogenous deposit dollarization," Staff Reports 160, Federal Reserve Bank of New York.
  2. Eduardo Morón & Diego Winkelried, 2003. "Monetary Policy Rules for Financially Vulnerable Economies," IMF Working Papers 03/39, International Monetary Fund.
  3. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
  4. Gerardo Licandro & José Antonio Licandro, 2003. "Building the Dedollarization Agenda: Lessons from the Uruguayan Case," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 193-218, July-Dece.
  5. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  6. Gianni De Nicoló & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System; Good or Bad?," IMF Working Papers 03/146, International Monetary Fund.
  7. Eduardo Levy Yeyati, 2003. "Financial Dedollarization: A Carrot and Stick Approach," Business School Working Papers nueve, Universidad Torcuato Di Tella.
  8. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation; Causes and Policy Implications," IMF Working Papers 98/28, International Monetary Fund.
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