Dollarization as an Investment Signal in Developing Countries: The Case of Croatia, Czech Republic, Peru, Slovak Republic and Turkey

Fordham University Department of Economics Discussion Paper No. 2008-16

27 Pages Posted: 23 Sep 2008

See all articles by Dominick Salvatore

Dominick Salvatore

Fordham University - Department of Economics

Erick W. Rengifo

Fordham University - Department of Economics - Center for International Policy Studies (CIPS)

Emre Ozsoz

Fordham University - Department of Economics - Center for International Policy Studies (CIPS)

Date Written: September 2008

Abstract

In dollarized financial systems, there exists a currency mismatch risk that could lead to financial crises. Central Banks in such economies have to adjust their foreign currency policies accordingly. This paper estimates the probability of Central Bankers' intervention in the foreign currency markets in dollarized economies as explained by the volatility measures of the local exchange rate. By employing data from five countries, we show that in controlled inflation environments, not only Central Banks' interventions but also the direction of the interventions can be predicted to a good degree while under high inflation our model fails to provide healthy results.

Keywords: Central Bank Intervention, Foreign Exchange Rates, Dollarization, Ordered Probit

JEL Classification: F31, E58, G15

Suggested Citation

Salvatore, Dominick and Rengifo, Erick W. and Ozsoz, Emre, Dollarization as an Investment Signal in Developing Countries: The Case of Croatia, Czech Republic, Peru, Slovak Republic and Turkey (September 2008). Fordham University Department of Economics Discussion Paper No. 2008-16. Available at SSRN: https://ssrn.com/abstract=1272092 or http://dx.doi.org/10.2139/ssrn.1272092

Dominick Salvatore (Contact Author)

Fordham University - Department of Economics ( email )

Bronx, NY 10458
United States

Erick W. Rengifo

Fordham University - Department of Economics - Center for International Policy Studies (CIPS) ( email )

United States
0017188174061 (Phone)
0017188173518 (Fax)

Emre Ozsoz

Fordham University - Department of Economics - Center for International Policy Studies (CIPS) ( email )

Dealy Hall 5th Floor
441 East Fordham Rd
New York, NY 10458
United States

HOME PAGE: http://www.fordham.edu/academics/office_of_research/research_centers__in/cips/

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