Download or read book Dollarization of Financial Intermediation written by Mr.Alain Ize and published by International Monetary Fund. This book was released on 1998-03-01 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a portfolio model of financial intermediation in which currency choice is determined by hedging decisions on both sides of a bank’s balance sheet. Minimum variance portfolio (MVP) allocations are found to provide a natural benchmark to estimate the scope for dollarization of bank deposits and loans as a function of macroeconomic uncertainty. Dollarization hysteresis is shown to occur when the expected volatility of the inflation rate is high in relation to that of the real exchange rate. The evidence shows that MVP dollarization generally approximates actual dollarization closely for a broad sample of countries, and policy implications are explored.

Download or read book Dollarization of Financial Intermediation written by Alain Ize and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a portfolio model of financial intermediation in which currency choice is determined by hedging decisions on both sides of banks' balance sheets. Minimum variance portfolio (MVP) allocations are found to provide a natural benchmark to estimate the scope for dollarization of bank deposits and loans as a function of macroeconomic uncertainty. In particular, dollarization hysteresis is shown to occur when the expected volatility of the inflation rate is high in relation to that of the real exchange rate. The evidence seems to support these conclusions as MVP dollarization generally approximates actual dollarization closely for a broad sample of countries. The paper also shows that deviations from MVP can result, inter alia, from shifts in the location of bank deposits, the level and currency composition of domestic public debt, and the implicit taxation of financial intermediation through reserve requirements. The implications for altering dollarization and conducting monetary policy in dollarized economies are explored.

Download or read book Dollarization of the Banking System written by Patrick Honohan and published by World Bank Publications. This book was released on 2003 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: De Nicolo, Honohan, and Ize assess the benefits and risks associated with dollarization of the banking system. The authors provide novel empirical evidence on the determinants of dollarization, its role in promoting financial development, and on whether dollarization is associated with financial instability. They find that: The credibility of macroeconomic policy and the quality of institutions are both key determinants of cross-country variations in dollarization. Dollarization is likely to promote financial deepening only in a high inflation environment. Financial instability is likely higher in dollarized economies. The authors discuss the implications of these findings for financial sector and monetary policies.

Download or read book Financial Stability in Dollarized Economies written by Ms.Anne Marie Gulde and published by International Monetary Fund. This book was released on 2004-06-15 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The process of dollarization can take multiple forms, including when a country adopts the US dollar either as its predominant currency, or establishes a bicurrency system with the local currency. This publication examines how to establish an adequate supervisory and crisis management framework in dollarized economies, particularly when central banks and regulators may be constrained in the use of standard monetary and financial policy tools. It is based on a paper produced by the IMF Executive Board, as part of the policy development work conducted by the IMFs Monetary and Financial Systems Department.

Download or read book Dollarization Financial Intermediation and Real Activity written by and published by . This book was released on 2005 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Dollarization of the Banking System written by Mr.Gianni De Nicolo and published by International Monetary Fund. This book was released on 2003-07-01 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the benefits and risks associated with dollarization of the banking system. We provide novel empirical evidence on the determinants of dollarization, its role in promoting financial development, and on whether dollarization is associated with financial instability. We find that: (a) the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross-country variations in dollarization; (b) dollarization is likely to promote financial deepening only in a high inflation environment; and (c) financial instability is likely higher in dollarized economies. The implications of these findings for financial sector and monetary policies are discussed.

Download or read book Determinants of Dollarization written by Mr.Luis Catão and published by INTERNATIONAL MONETARY FUND. This book was released on 2000-08-01 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dollarization in financial intermediation has exhibited a widely diverse pattern across countries. Empirical work relating it to macroeconomic variables has had only limited success in explaining the phenomenon. This paper presents a two-currency banking model to show that deposit and loan dollarization are determined by a broader set of factors. These include interest rates and exchange rate risk, as well as structural factors related to costly banking, credit market imperfections, and availability of tradable collateral. The direction in which dollarization tends to move with macroeconomic shocks is shown to depend on those factors as well as on initial dollarization levels.

Download or read book Dollarization of Banking Financial Stability and Financial Liberalization written by Carlos Óscar Arteta and published by . This book was released on 2002 with total page 382 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Dollarization and Financial Development written by Mr.Geoffrey J Bannister and published by International Monetary Fund. This book was released on 2018-09-11 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite significant strides in financial development over the past decades, financial dollarization, as reflected in elevated shares of foreign currency deposits and credit in the banking system, remains common in developing economies. We study the impact of financial dollarization, differentiating across foreign currency deposits and credit on financial depth, access and efficiency for a large sample of emerging market and developing countries over the past two decades. Panel regressions estimated using system GMM show that deposit dollarization has a negative impact on financial deepening on average. This negative impact is dampened in cases with past periods of high inflation. There is also some evidence that dollarization hampers financial efficiency. The results suggest that policy efforts to reduce dollarization can spur faster and safer financial development.

Download or read book Financial Dollarization in Emerging Market and Transition Economies written by Alina C. Luca and published by . This book was released on 2003 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Escaping the Financial Dollarization Trap The Role of Foreign Exchange Intervention written by Paul Castillo and published by International Monetary Fund. This book was released on 2024-06-21 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial dollarization is considered a source of macroeconomic instability in many emerging economies. Dollarization constrains the ability of central banks to stimulate output during economic downturns. In contrast to the conventional monetary transmission mechanism, a monetary policy loosening in a dollarized economy leads to a currency depreciation, adverse balance sheet effects, and a contraction in investment and output growth. In this paper we evaluate the role of foreign exchange reserves in facilitating macroeconomic stabilization in a financially dollarized economy. We first show empirically that foreign exchange intervention in response to capital outflows can largely reduce the volatility of output and the real exchange rate in dollarized economies. We then develop a small open economy model with foreign currency debt and balance sheets effects. Our quantitative model shows that an active foreign exchange intervention policy is sufficient for offsetting the output volatility associated with financial dollarization. These results can explain the prevalence of low macroeconomic volatility in some dollarized economies (Christiano et al., 2021) and they highlight the role of foreign exchange reserves in reducing the welfare costs of dollarization.

Download or read book Dollarization financial intermediation and real activity written by and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Department of Economics, The Institute for Public Economics, and the University of Alberta accept no responsibility for the accuracy or point of view represented in this work in progress. [...] The importance of these findings is clearer when considered in conjunction with the evidence on the link between economic development and the development of financial markets. [...] Our paper constitutes the first theoretical attempt to incorporate the analysis of dollarization into a study of the impact of inflation on financial intermediation and the real activity in a way that pinpoints empirical evidence. [...] The framework used in this paper is conducive to a positive relationship between inflation and output, as all the seigniorage revenue is rebated to the agents and is saved by them, and the productive capital is the highest-return asset available to them. [...] Hence, the illiquidity of capital, the stochastic nature of the demand for liquidity, and the properties of optimal risk sharing mechanism, are responsible for the threshold level of inflation.

Download or read book Dollarization in Latin America written by Miguel A. Savastano and published by International Monetary Fund. This book was released on 1996 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the pattern of dollarization in Latin America, focusing on the experience of five countries (Argentina, Bolivia, Mexico, Peru and Uruguay) during 1970-1993. It presents evidence on the relative size of dollarization, the allocation of foreign currency deposits, and the behavior of money velocity. The discussion stresses the role of institutional factors, macroeconomic conditions, and the dynamics of money demand In shaping the dollarization process; it also highlights the shortcomings of indicators frequently employed to analyze the phenomenon. The paper provides a brief critical assessment of the empirical literature on dollarization, and identifies areas where further research seems warranted.

Download or read book Financial Dollarization written by Alain Ize and published by . This book was released on 2004 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a portfolio model of financial intermediation in which currency choice is determined by hedging decisions on both sides of a bank's balance sheet. We show that minimum variance portfolio (MVP) allocations provide a natural benchmark to estimate the scope for dollarization of assets and liabilities (financial dollarization) as a function of macroeconomic uncertainty. Within this benchmark, we find that financial dollarization displays high persistence whenever the expected volatility of the inflation rate remains high in relation to that of the real exchange rate, even after price stabilization has been achieved. The empirical evidence confirms that MVP dollarization approximates financial dollarization closely for a broad sample of countries.

Download or read book Financial globalization unequal blessings written by Augusto de la Torre and published by World Bank Publications. This book was released on 2002 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: De la Torre, Levy Yeyati, and Schmukler present a framework to analyze financial globalization. They argue that financial globalization needs to take into account the relation between money (particularly in its role as store of value), asset and factor price flexibility, and contractual and regulatory institutions. Countries that have the "blessed trinity" (international currency, flexible exchange rate regime, and sound contractual and regulatory environment) can integrate successfully into the world financial markets. But developing countries normally display the "unblessed trinity" (weak currency, fear of floating, and weak institutional framework). The authors define and discuss two alternative avenues (a "dollar trinity" and a "peso trinity") for developing countries to safely embrace international financial integration while the blessed trinity remains beyond reach. This paper--a product of the Office of the Chief Economist, Latin America and the Caribbean Region, and the Investment Climate Team, Development Research Group--is part of a larger effort in the Bank to assess the implications of financial globalization for emerging economies.

Download or read book Deposit Dollarization and Its Impact on Financial Deepening in the Developing World written by Erick W. Rengifo and published by . This book was released on 2014 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the main reasons for dollarization is the erosion of money's function as a store of value as the Currency Substitution view suggests. It has not been uncommon for countries with high inflationary processes to have high dollarization ratios and banking system that faces important challenges and risks that significantly affect their ability to provide capital to the overall economy (financial intermediation). In these economies, dollarization played a dual role: in one hand, the role of a hedging instrument protecting the value of money and, in the other hand, contributing to generate the so-called currency mismatch and default risks. This paper investigates the role of dollarization on the development of financial intermediation in developing economies. Our empirical findings suggest that dollarization has a negative impact on financial deepening, except on high-inflation economies.

Download or read book Modeling with Macro Financial Linkages written by Ms.Inci Ötker and published by International Monetary Fund. This book was released on 2009-06-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a stylized, small, open economy macro model that incorporates an explicit and non-trivial role for financial intermediation. It illustrates how such a model could be used for policy analysis in an emerging market economy where policymakers are concerned about risks associated with rapid credit growth, financial dollarization, and foreign borrowing, while lacking traditional tools to effect monetary policy transmission, and hence could resort to more direct instruments, such as foreign exchange market intervention and regulatory and administrative measures. Calibrating the model to a stylized emerging European economy, the paper simulates real and financial sector implications of various external and policy-related shocks that could be used as input for monetary policy making.