Front Matter

Front Matter

Author(s):
R. Gelos, Alejandro Lopez Mejia, and Marco Piñón-Farah
Published Date:
July 2008
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    Macroeconomic Implications of Financial Dollarization The Case of Uruguay

    Edited by Marco Piñón, Gaston Gelos, and Alejandro López-Mejía

    INTERNATIONAL MONETARY FUND

    Washington, D.C.

    2008

    © 2008 International Monetary Fund

    Production: IMF Multimedia Services Division

    Typesetting: Alicia Etchebarne-Bourdin

    Figures: Andrew Sylvester

    Cataloging-in-Publication Data

    Macroeconomic implications of financial dollarization: the case of Uruguay/ edited by Marco Piñón, Gaston Gelos, and Alejandro López-Mejía— Washington, D.C.: International Monetary Fund, 2008.

    p. cm.—(Occasional paper, 0251-6365; 263)

    Includes bibliographical references.

    ISBN 978-1-58906-727-1

    1. Dollarization—Uruguay. 2. Monetary policy—Uruguay. 3. Banks and banking—Uruguay. 4. Finance—Uruguay. I. Piñón, Marco. II. Gelos, Gaston. III. López-Mejía, Alejandro. IV. International Monetary Fund. V. Occasional paper (International Monetary Fund); no. 263.

    HG905 .M337 2008

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    Contents

    The following conventions are used in this publication:

    • In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

    • An en dash (-) between years or months (for example, 2005-06 or January-June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).

    • “Billion” means a thousand million; “trillion” means a thousand billion.

    • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

    Preface

    In recent years, the International Monetary Fund has set itself the challenge of becoming a global center of excellence on international finance and its linkages with broader macroeconomic phenomenons, including growth, inflation, investment, currency values, and overall stability.

    The analytical work brought together here is a good example of this new emphasis. It parallels the shift in the IMF’s relationship with Uruguay, which has moved on from dealing with the aftermath of the 2002 crisis to understanding underlying economic structures and transmission mechanisms in a heavily dollarized financial system, and bringing to the fore related policy issues. The questions posed in this volume are central to the conduct of macroeconomic policy: How much room to maneuver does the central bank of a dollarized financial system have to influence inflation expectations and dynamics? Through what channels is monetary policy transmitted, and what effect does policy credibility have on the degree of dollarization? What level of international reserves is prudent?

    I would like to thank all concerned for their contributions, including the Uruguayan authorities.

    The opinions expressed in this paper are solely those of its authors and do not necessarily reflect the views of the International Monetary Fund, its Executive Directors, or national authorities.

    Anoop Singh

    Director

    Western Hemisphere Department

    International Monetary Fund

    Abbreviations

    BHU

    Banco Hipotecario del Uruguay

    BROU

    Banco de la Repɐblica Oriental del Uruguay

    CAR

    Capital adequacy ratio

    CPI

    Consumer price index

    EDP

    Expected default probability

    EMBI

    Emerging Markets Bond Index (JPMorgan)

    FIML

    Full-information maximum likelihood

    FSAP

    Financial Sector Assessment Program (IMF)

    GDP

    Gross domestic product

    GMM

    Generalized method of moments

    HH

    Herfindahl-Hirschman

    LIBOR

    London Interbank Offered Rate

    NPV

    Net present value

    OLS

    Ordinary least squares

    PPI

    Producer price index

    UBI

    Uruguayan Bond Index

    VAR

    Vector autoregression

    VEC

    Vector error correction

    VIX

    Volatility Index (Chicago Board Options Exchange)

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