Revisiting the Concept of Dollarization : The Global Financial Crisis and Dollarization in Low-Income Countries / Nkunde Mwase, Francis Kumah.

Format:

Book

Government document

Author/Creator:

Mwase, Nkunde.

Contributor:

Kumah, Francis.

International Monetary Fund. Strategy, Policy, and Review Department, issuing body.

Series:

IMF Working Papers; Working Paper ; No. 2015/012

IMF Working Papers

Language:

English

Subjects (All):

Dollarization--Developing countries--Econometric models.

Dollarization.

Global Financial Crisis, 2008-2009--Econometric models.

Global Financial Crisis, 2008-2009.

Foreign exchange rates--Developing countries--Econometric models.

Foreign exchange rates.

Financial risk--Developing countries--Econometric models.

Financial risk.

Physical Description:

1 online resource (32 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2015.

Summary:

The economic literature has examined deposit dollarization in nominal terms, typically focusing on the ratio of foreign currency deposits to broad money. However, while private agent demand for foreign currency may remain unchanged in foreign currency terms, there could be large fluctuations in the dollarization ratio simply due to exchange rate movements. This paper proposes a new approach to measuring dollarization that removes these exchange rate effects, and demonstrates that beyond the variance of inflation and depreciation, the level of inflation and size of depreciation also matter for dollarization. While dollarization in nominal terms surged during the recent global financial crisis, there was a downward trend in real terms. Employing a set of econometric estimators, this paper investigates whether “real” dollarization during 2006–09 was associated with the crisis, and the role of initial macroeconomic conditions, quality of institutions, risk aversion, and prudential measures. We find that exchange rate appreciation and reductions in sovereign risk do moderate dollarization; but the results for global volatility have low statistical significance, perhaps because global shocks tend to preserve, to a large extent, relative attractiveness of foreign assets. Nonetheless, estimated impulse-response functions point to a large but short-lived positive impact of global volatility on dollarization, which could reflect economic agents heightened concerns about spillover effects of global uncertainty on the domestic economy.

Contents:

Cover; Contents; I. Introduction; II. Measuring Deposit Dollarization; III. Recent Trends In Deposit Dollarization; Figures; 1. Trends in Deposit Dollarization, 2006m1-2009m12; 2. Ghana and Zambia: Trends in Deposit Dollarization, 2006m1-2009m12; 3. Surge in Deposit Dollarization, 2006m3-2009m11; 4. LICs: Deposit Dollarization, by Region, 2006m1-2009m12; 5. LICs and EMs: Deposit Dollarization Growth Risk Aversion; 6. Selected Countries: Deposit Dollarization Growth and Global Risk Aversion, 2006m1-2009m12; 7. LICs: Deposit Dollarization Growth and Change in Prudential Measures, 2006m1-2009m12

8. Current and Capital Account Controls, 2005-20119. Variance of Nominal Dollarization, by inflation and depreciation, 2006m1-2009m12; IV. Literature Review; V. The Theoretical Model; 10. Saddle Path in S-F Space; 11. Exchange rate depreciation induces foreign asset demand; VI. The Empirical Approach and Results; Box 1. Determinants of Surge in Deposit Dollarization; Table 1. Panel Econometric Estimates of Real Dollarization in Low-Income Countries; VII. Conclusion and Policy Implications; Appendix Figures; 1. Estimated Panel Impulse-Response Functions

2. Estimated Panel Panel Impulse-Response FunctionsAppendix Tables; 1. Country List and Average Deposit Dollarization; 2. Variable Description and Definition; 3. Summary Statistics of Monthly Panel Data; 4. Estimated Variance Decompositions; 5. Estimated Variance Decompositions: Alternative of Variable for Choleski Decomposition; References

Notes:

Description based upon print version of record.

Includes bibliographical references.

Description based on online resource; title from PDF title page (ebrary, viewed March 5, 2015).

ISBN:

9781484320105

1484320107

9781484303344

1484303342