Exchange Rate Policy and Liability Dollarization: What Do the Data Reveal About Causality?

 
Author/Editor: Berkmen, Pelin ; Cavallo, Eduardo A.
 
Publication Date: February 01, 2007
 
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Summary: 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.
 
Series: Working Paper No. 07/33
Subject(s): Dollarization | Exchange rate policy | External debt

Author's Keyword(s): Dollarization | exchange rate policy
 
English
Publication Date: February 01, 2007
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2007033 Pages: 47
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