Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?

Dollarization, Exchange Rate Regimes and Government Quality

The dollarization of the domestic banking system represents a source of vulnerability for emerging market countries, and a debate has emerged over whether the exchange rate regime has an impact on the degree of dollarization. This paper argues that the regime is far less important than the literature has previously claimed. Unofficial dollarization results from a lack of faith in the domestic c...

Financial Dollarization and Central Bank Crediblity.∗

Why do firms and banks hold foreign currency denominated liabilities? In this paper, we argue that foreign currency debt, by altering the effect of a devaluation on output, has a disciplining effect when the Central Bank’s objectives differ from the social optimum. However, under imperfect information, bad priors about the Central Bank induce excess dollarization of liabilities, which in turn l...

Real and Financial Shocks, Exchange Rate Regimes and the Probability of a Currency Crisis

Credit Dollarization in Transition Economies: Is it Firms’ or Banks’ “Fault”?

The existing empirical literature on credit dollarization has not reached agreement on its causes. Most studies that analyze financial dollarization start from the presumption that credit dollarization is supply-determined. If this were the case, then policies that attempt to reduce dollarization should aim to affect behavior in the banking sector. We use a newly constructed dataset for twenty-...

Policy Time-Inconsistency: A Comparison of Managed Floating Exchange Rate and Controlled Exchange Rate Regimes

Some empirical and theoretical studies have emphasized on fixed exchange rate regime in controlling time inconsistency, while others consider the role of target zone regime as an important factor. Thus there is no general consensus to decide which exchange rate regime may bring about less time-inconsistency. The main purpose of this study is to investigate policy time-inconsistency in exchange ...