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Financial Dollarization Equilibria: A Framework for Policy Analysis
Author:
Mr. Alain Ize
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Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 186
Language:
English
Publication Date:
01 Sep 2005
DOI:
https://doi.org/10.5089/9781451862058.001
ISBN:
9781451862058
ISSN:
1018-5941
Pages:
30
Keywords:
WP; monetary policy; exchange rate
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Rapidly rising dollarization and numerous related financial crises in recent years have heightened the need for policy action. This paper contributes to the policy debate by presenting a common analytic framework that examines the roots of de facto financial dollarization under different economic environments and analyzes its interplay with monetary and prudential policies. In addition to providing a systematic analysis of the existence, stability, and multiplicity of dollarization equilibria, the paper makes a few novel contributions. In particular, it stresses the key role played by monetary policy endogeneity and identifies the underlying determinants of the peso premium that are responsible for inducing a preference for the dollar in financial transactions.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund