Dollarization of Liabilities: Beyond the Usual Suspects

42 Pages Posted: 26 Apr 2003

See all articles by Adolfo Barajas

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department

Armando Morales Bueno

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

Date Written: January 2003

Abstract

Dollarization of liabilities (DL) has emerged as a key factor in explaining the vulnerability of emerging markets to financial and currency crises. The "usual suspects" of causing DL include fatalistic determinants such as a long history of unsound macroeconomic policies, financial development and institutional factors, aided by moral hazard opportunities arising from the existence of government guarantees. This paper assesses empirically the relevance of these factors, as well as that of alternative explanations for DL. Based on a sample of Latin American countries, we find that ongoing central bank intervention in the foreign exchange market, relative market power of borrowers, and financial penetration are at least as important as the usual suspects in explaining DL.

Keywords: Dollarization, bank credit, exchange rates, panel data

JEL Classification: C33, E44, G21, F31, F34

Suggested Citation

Barajas, Adolfo and Morales, R. Armando, Dollarization of Liabilities: Beyond the Usual Suspects (January 2003). IMF Working Paper No. 03/11. Available at SSRN: https://ssrn.com/abstract=384880 or http://dx.doi.org/10.2139/ssrn.384880

Adolfo Barajas (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4152 (Phone)
202-623-6070 (Fax)

R. Armando Morales

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department ( email )

700 19th Street NW
Room 6-548
Washington, DC 20431
United States
202-623-8476 (Phone)

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