Exchange Rate Policy and Liability Dollarization: What Do the Data Reveal About Causality? PDF Download
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Author: Pelin Berkmen
Publisher: INTERNATIONAL MONETARY FUND
ISBN: 9781451865974
Category :
Languages : en
Pages : 47
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Book Description
The paper identifies the contemporaneous relationship between exchange rate policy and liability dollarization using three different definitions of dollarization. The presence of endogeneity makes the empirical identification elusive. We use identification through heteroskedasticity to solve the endogeneity problem in the present context (Rigobon, 2003). While we find that countries with high liability dollarization (external, public, or financial) tend to be more actively involved in exchange rate stabilization operations, we do not find evidence that floating, by itself, promotes de-dollarization.
Author: Pelin Berkmen
Publisher: INTERNATIONAL MONETARY FUND
ISBN: 9781451865974
Category :
Languages : en
Pages : 47
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Book Description
The paper identifies the contemporaneous relationship between exchange rate policy and liability dollarization using three different definitions of dollarization. The presence of endogeneity makes the empirical identification elusive. We use identification through heteroskedasticity to solve the endogeneity problem in the present context (Rigobon, 2003). While we find that countries with high liability dollarization (external, public, or financial) tend to be more actively involved in exchange rate stabilization operations, we do not find evidence that floating, by itself, promotes de-dollarization.
Author: Pelin Berkmen
Publisher:
ISBN:
Category : Currency substition
Languages : en
Pages : 54
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Book Description
The paper identifies the contemporaneous relationship between the exchange rate policy and external debt dollarization in a panel of industrial and developing countries. The presence of endogeneity makes the task of empirical identification elusive. The paper uses the method of "identification through heteroskedasticity" developed by Rigobon (2003) to solve the problem of identification in the present context. It finds that, controlling for endogeneity, countries with aggregate liability dollarization tend to be more actively involved in exchange rate stabilization operations, but it finds mixed results for the reverse causality.
Author: Herman Kamil
Publisher: International Monetary Fund
ISBN: 1463939051
Category : Business & Economics
Languages : en
Pages : 54
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Book Description
Using a unique dataset with information on the currency composition of firms' assets and liabilities in six Latin-American countries, I investigate how the choice of exchange rate regime affects firms' foreign currency borrowing decisions and the associated currency mismatches in their balance sheets. I find that after countries switch from pegged to floating exchange rate regimes, firms reduce their levels of foreign currency exposures, in two ways. First, they reduce the share of debt contracted in foreign currency. Second, firms match more systematically their foreign currency liabilities with assets denominated in foreign currency and export revenues--effectively reducing their vulnerability to exchange rate shocks. More broadly, the study provides novel evidence on the impact of exchange rate regimes on the level of un-hedged foreign currency debt in the corporate sector and thus on aggregate financial stability.
Author: Mr.Mauro Mecagni
Publisher: International Monetary Fund
ISBN: 1513554360
Category : Business & Economics
Languages : en
Pages : 75
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Book Description
Dollarization—the use of foreign currencies as a medium of exchange, store of value, or unit of account—is a notable feature of financial development under macroeconomically fragile conditions. It has emerged as a key factor explaining vulnerabilities and currency crises, which have long been observed in Latin America, parts of Asia, and Eastern Europe. Dollarization is also present, prominently, in sub-Saharan Africa (SSA) where it remains significant and persistent at over 30 percent rates for both bank loans and deposits—although it has not increased significantly since 2001. However, progress in reducing dollarization has lagged behind other regions and, in this regard, it is legitimate to ask whether this phenomenon is an important concern in SSA. This study fills a gap in the literature by analyzing these issues with specific reference to the SSA region on the basis of the evidence for the past decade.
Author: Mr.Sebastian Sosa
Publisher: International Monetary Fund
ISBN: 1455211885
Category : Business & Economics
Languages : en
Pages : 25
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Book Description
In the last decade, a group of Latin American countries (Bolivia, Paraguay, Peru, and Uruguay) experienced a gradual, yet sustained decline in financial dollarization. This paper documents the stylized facts and uses a standard VAR approach to examine the drivers of both deposit and credit de-dollarization. It finds that the exchange rate appreciation has been a key factor explaining deposit de-dollarization. The introduction of prudential measures to create incentives to internalize the risks of dollarization (including an active management of reserve requirement differentials), the development of a capital market in local currency, and de-dollarization of deposits have all contributed to a decline in credit dollarization. Continuing efforts on these fronts, while maintaining macroeconomic stability and strong fundamentals, would help deepening de-dollarization.
Author: GASTON. SAHAY GELOS (RATNA.)
Publisher: International Monetary Fund
ISBN:
Category :
Languages : en
Pages : 2040
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Book Description
Author: Mr.Adam Bennett
Publisher: International Monetary Fund
ISBN: 9781557757579
Category : Business & Economics
Languages : en
Pages : 62
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Book Description
Dollarization - the holding by residents of a substantial portion of their assets in foreign-currency-denominated assets- is a common feature of developing and transition economies, and therefore typical of many countries with IMF - supported adjustment programs. This paper analyzes policy issues that arise-and various monetary strategies that may be pursued- when the monetary sector is dollarized, and it considers the implications that dollarization has for the design of IMF programs.
Author: Nazim Belhocine
Publisher: International Monetary Fund
ISBN: 1475557892
Category : Business & Economics
Languages : en
Pages : 52
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Book Description
The demands on monetary and exchange rate regimes in CESEE have evolved, in line with the region’s development. In the 1990s, the immediate challenge was to rein in excessive inflation following transition, and to establish basic monetary order. These objectives have been achieved, owing largely to successful exchange rate–based stabilization. With this accomplished, the focus has shifted to cyclical monetary management, and to appropriately managing monetary conditions during CESEE’s growth and income convergence to the euro area. Flexible exchange rates—and the ensuing capacity of monetary conditions to adapt to the economies’ needs—are likely to remain advantages, especially to extent that CESEE’s GDP and income levels will resume convergence to the euro area. Once this process restarts, tighter monetary conditions will again be needed to limit goods and asset price inflation, and to contain growth imbalances.
Author: Tatsiana Kliatskova
Publisher: International Monetary Fund
ISBN: 1513522507
Category : Business & Economics
Languages : en
Pages : 35
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Book Description
Countries with de jure floating exchange rate regimes are often reluctant to allow their currencies to float freely in practice. One reason why countries may wish to limit exchange rate volatility is potential negative balance sheet effects due to currency mismatches on the balance sheets of firms and households. In this paper, we show in a sample of 15 emerging market economies that countries with large foreign exchange (FX) debt in the non-financial private sector tend to react more strongly to exchange rate changes using both FX interventions and monetary policy. Thus, our results support the idea that an important source of “fear of floating” is balance sheet currency mismatches. This effect is asymmetric; that is, countries stem depreciation but not appreciation pressure. Moreover, FX debt financed through the domestic banking system is more important for fear of floating than FX debt obtained directly from external sources.
Author: International Monetary Fund. European Dept.
Publisher: International Monetary Fund
ISBN: 1484301587
Category : Business & Economics
Languages : en
Pages : 74
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Book Description
This Selected Issues paper estimates a small open economy model that makes it possible to quantify the relative strength of the trade and financial channels in Hungary, Poland. and Romania. The Bayesian results indicate that both the trade and financial channels are strongest for Romania, possibly owing to the expansion of financial balance sheets and lower integration into global supply chains. For all countries, tighter domestic monetary conditions result in reduction of output and currency appreciation, although the magnitude of appreciation is less in Romania compared with peers. The trade channel is also dominant in the transmission of foreign monetary policy shocks, which result in output losses and currency depreciation.
