Dollarization Dynamics: A Comment

27 Pages Posted: 24 Jun 2023 Last revised: 24 Feb 2024

See all articles by Emilio Ocampo

Emilio Ocampo

UCEMA

Nicolas Cachanosky

The University of Texas at El Paso; American Institute for Economic Research; UCEMA Friedman-Hayek Center for the Study of a Free Society

Date Written: 2024

Abstract

We analyze a recent paper that claims that dollarizing an economy in the presence of a “dollar shortage” will provoke an immediate sharp reduction in real output and welfare. We find many problems with the model that supports this conclusion: confusion about the nature of a dollar shortage and its practical implications, invalid assumptions, invariant calibration in the presence of a regime change and lack of empirical testing. In our opinion, the paper does not make a valuable contribution to the dollarization debate nor provide useful guidance to policymakers. The proposed model is based on unrealistic assumptions and its predictions are contradicted by the available evidence. A more promising and useful line of research would have been to investigate what happens to a dollarized economy in a scenario of exchange rate overshooting and how it compares in relation to other stabilization plans.

Keywords: dollarization, dynamics, dollar shortage

JEL Classification: E10, E42, E50, F30, F33

Suggested Citation

Ocampo, Emilio and Cachanosky, Nicolas, Dollarization Dynamics: A Comment ( 2024). Available at SSRN: https://ssrn.com/abstract=4476965 or http://dx.doi.org/10.2139/ssrn.4476965

Emilio Ocampo

UCEMA ( email )

Córdoba 374
1054 Buenos Aires
Argentina

Nicolas Cachanosky (Contact Author)

The University of Texas at El Paso

500 West University Avenue
El Paso, TX 79968
United States

HOME PAGE: http://https://www.utep.edu/

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

UCEMA Friedman-Hayek Center for the Study of a Free Society ( email )

Buenos Aires
Argentina

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