Carry Trade vs. Deposit-Driven Euroization

30 Pages Posted: 5 Apr 2018

See all articles by Nan Geng

Nan Geng

International Monetary Fund (IMF)

Tiberiu Scutaru

International Monetary Fund (IMF)

Johannes Wiegand

International Monetary Fund (IMF)

Date Written: March 2018

Abstract

Financial 'euroization'-or 'dollarization' outside of Central and Eastern Europe-is typically analyzed as a singular phenomenon that can be traced to a common set of factors. This paper argues that two types of euroization need to be distinguished, which have different causes, economic consequences, and policy implications: carry trade euroization that emerges when households and corporations seek to exploit interest rate differentials between foreign currency loans and local currency deposits, and deposit-driven euroization that is rooted in distrust in the local currency as a savings vehicle. We present a theoretical framework that sketches key features of both euroization types, and test it with data from 28 Emerging European and Central Asian economies.

Keywords: Financial Dollarization, Euroization, Emerging Europe, Portfolio Choice

JEL Classification: E43, G11, G21, L11

Suggested Citation

Geng, Nan and Scutaru, Tiberiu and Wiegand, Johannes, Carry Trade vs. Deposit-Driven Euroization (March 2018). IMF Working Paper No. 18/58, Available at SSRN: https://ssrn.com/abstract=3157020

Nan Geng (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Tiberiu Scutaru

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Johannes Wiegand

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
54
Abstract Views
466
Rank
821,743
PlumX Metrics