Not Available for Download

Default Risk and Dollarization in Mexico

JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 28, No. 3, Part 1, August 1996

Posted: 22 Apr 1998  

William C. Gruben

affiliation not provided to SSRN

John H. Welch

Lehman Brothers

Abstract

Most empirical evidence of dollarization in Latin America accords with the theoretical claim that increases in expected devaluation increase dollarization. But Rogers (1992a and 1992b) finds that between 1978 and 1982, relative holdings of Mexdollars were negatively related to expected devaluation. Expected returns on Mexdollar deposits, however, depended on the solvency of the banking system. We investigate these links. We find that banking system insolvency decreases Mexdollar deposit demand and increases peso deposit demand. Once these effects are controlled for, Mexdollar demand increases with expected devaluation, even between 1978 and 1982.

JEL Classification: F31, N16, N26

Suggested Citation

Gruben, William C. and Welch, John H., Default Risk and Dollarization in Mexico. JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 28, No. 3, Part 1, August 1996. Available at SSRN: https://ssrn.com/abstract=3268

William C. Gruben (Contact Author)

affiliation not provided to SSRN

John H. Welch

Lehman Brothers ( email )

745 Seventh Avenue
New York, NY 10019
United States

Paper statistics

Abstract Views
1,066