Exchange Rate Policy and Liability Dollarization: An Empirical Study
February 1, 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.
Subject: Currencies, Dollarization, Exchange rate arrangements, Exchange rate policy, Exchange rates
Keywords: central bank, foreign currency, liability dollarization, monetary policy, standard deviation, WP
Pages:
47
Volume:
2007
DOI:
Issue:
033
Series:
Working Paper No. 2007/033
Stock No:
WPIEA2007033
ISBN:
9781451865974
ISSN:
1018-5941
