Exchange Rate Policy and Liability Dollarization: What Do the Data Reveal About Causality?
38 Pages Posted: 24 Apr 2007
Date Written: February 2007
Abstract
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.
Keywords: Dollarization, Exchange rate policy, External debt
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Balance Sheet Effects, Bailout Guarantees and Financial Crises
By Martin Schneider and Aaron Tornell
-
Hedging and Financial Fragility in Fixed Exchange Rate Regimes
By A. Craig Burnside, Martin Eichenbaum, ...
-
By Francis E. Warnock and John D. Burger
-
By John D. Burger and Francis E. Warnock
-
Emerging Local Currency Bond Markets
By John D. Burger, Francis E. Warnock, ...
-
Why Do Emerging Market Economies Borrow in Foreign Currency?
-
Foreign Participation in Local Currency Bond Markets
By John D. Burger and Francis E. Warnock
-
Foreign Participation in Local-Currency Bond Markets
By Francis E. Warnock and John D. Burger
-
A Corporate Balance Sheet Approach to Currency Crises
By Philippe Aghion, Abhijit V. Banerjee, ...