financial dollarization short run determinants in transition economies this paper examines the determinants of financial dollarization in transition economies from a short run perspective using aggregate monthly data of deposit and loan dollarization we study the drivers of short term fluctuations in dollarization and test their importance at different levels of dollarization the results provide evidence that a the positive negative short run effects of depreciation monetary expansion on deposit dollarization are exacerbated in high dollarization countries b short run loan dollarization is mainly driven by banks matching of domestic loans and deposits currency matching of assets and liabilities international financial integration and institutional quality and c both types of short run dollarization are affected by interest rate differentials and deviations from desired dollarization

financial dollarization the role of foreign owned banks and interest rates abstract why in many economies households and firms borrow and make deposits in foreign currency expanding on the existing literature our framework addresses this question allowing for interest rate differentials and access to foreign funds to play a role in explaining this process of asset substitution or financial dollarization using a newly compiled data set on transition economies and employing a standard panel as well as a panel var methodology we find that increasing access to foreign funds leads to higher credit dollarization while it decreases deposit dollarization interest rate differentials matter for the dollarization of both loans and deposits

the effects of flexible specialization on industrial politics and the labor market the motion picture industry the authors citing historical and statistical evidence spanning three decades examine how the transition to flexibly specialized production organization in the motion picture industry has changed the distribution of work and wages and the definition of skills one important result of that process has been the emergence of a new form of intra occupational labor market segmentation based much less on differences in hourly wage rates than on differential access to hours of work also the reorganization of the production process has altered the relative bargaining power of employers and workers and of different groups within the industry work force resulting in increased conflict among segments of the work force and a strengthening of employers bargaining power vis a vis industry unions

a search theoretic model of legal and illegal currency abstract using a search theoretic model of money we explore the conditions under which two currencies domestic and foreign will co exist despite legal restrictions on the use of foreign currency for internal trade we study how changes in government policy i e its enforcement of currency laws through fines or the rate of enforcement affects the acceptability of illegal currency the equilibrium value of both currencies and the implicit exchange rate first we construct a model with indivisible goods to show conditions under which legal currency is fully acceptable but illegal currency circulates with varying acceptability we then introduce bargaining to determine prices in legal and illegal currency we show that some enforcement polices can create multiple equilibria while others will not also some methods of enforcement are capable of driving the illegal currency out of circulation while others are not

a review of o rourke and williamson s globalization and history the evolution of a nineteenth century atlantic economy much of the comparative economic history of the nineteenth century focuses on the spread of the industrial revolution from britain incomes converged in this view as the transfer of superior technology raised incomes in the periphery in globalization and history kevin o rourke and jeffrey williamson challenge this technological approach arguing that neoclassical effects of trade and factor supply changes provide more insight increased trade stimulated by falling transportation costs and factor movements caused prices of locally scarce factors to fall and promoted factor price convergence

bankruptcy costs liability dollarization and vulnerability to sudden stops abstract countries with intermediate levels of institutional quality suffer larger output contractions following sudden stops of capital inflows than less developed nations however countries with strong institutions seldom experience significant falls in output after capital flow reversals we reconcile these two observations using a calibrated dsge model that extends the financial accelerator framework developed in bernanke gertler and gilchrist 1999 the model captures financial market institutional quality with creditors ability to recover assets from bankrupt firms bankruptcy costs affect vulnerability to sudden stops directly but also indirectly by affecting the degree of liability dollarization simulations reveal an inverted u shaped relationship between bankruptcy costs and the output loss following sudden stops

pass through in dollarized countries should ecuador abandon the us dollar in this article we examine the convenience of dollarization for ecuador today as ecuador is strongly integrated financially and commercially with the united states the exchange rate pass through should be zero however we sustain that rising rates of imports from trade partners other than the united states and subsequent real effective exchange rate depreciations are causing the pass through to move away from zero here in the framework of the vector error correction model we analyse the impulse response function and variance decomposition of the inflation variable we show that the developing economy of ecuador is importing inflation from its main trading partners most of them emerging countries with appreciated currencies we argue that if ecuador recovered both its monetary and exchange rate instruments it would be able to fight against inflation we believe such an analysis could be extended to other countries with pegged exchange rate regimes

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

sudden stops are global and local investors alike the main goal of this paper is to characterize the determinants of sudden stops caused by domestic vis a vis foreign residents are the decisions of domestic investors to invest abroad or of foreign investors to cut off funds from the domestic economy governed by the same set of determinants given the distribution of different types of sudden stop episodes over time and its different macroeconomic consequences the authors argue that the determinants may not be alike using an effective sample of 82 countries with annual information over the period 1970 2007 the analysis finds that global investors are less likely to stop bringing their capital when their economy is growing and the world interest rate is lower domestic agents are more willing to invest abroad if the macroeconomic performance of the domestic economy is poor high inflation the financial system is weak and there are high external savings current account surpluses increasing financial openness makes the domestic country more vulnerable to sudden stops caused by either local or global investors finally countries with higher shares of foreign direct investment are less prone to inflow driven sudden stops whereas the opposite holds for outflow driven sudden stops

hedging and financial fragility in fixed exchange rate regimes currency crises that coincide with banking crises tend to share at least three elements first banks have a currency mismatch between their assets and liabilities second banks do not completely hedge the associated exchange rate risk third there are implicit government guarantees to banks and their foreign creditors this paper argues that the first two features arise from banks optimal response to government guarantees we show that guarantees completely eliminate banks incentives to hedge the risk of a devaluation our model also articulates one reason why governments might be tempted to provide guarantees to bank creditors guarantees lower the domestic interest rate and lead to a boom in economic activity but this boom comes at the cost of a more fragile banking system in the event of a devaluation banks renege on foreign debts and declare bankruptcy

convergence in the pre 1914 atlantic economy what really happened to wages in ireland between 1881 and 1911 after the famine irish wages caught up to those of great britain catch up is ascribed to globalised labour markets and the effects of emigration however current estimates of the level of irish wages and their rate of growth are based on a small sample of the male workforce this article presents estimates of the average wage for all wage earners and the irish wage bill this enables an estimate of an implied british average wage and wage bill the new estimates show that although there was significant wage catch up in a few occupations in general catch up was less rapid than recent studies have suggested the origins of this catch up are also examined consistent with earlier studies which emphasise modernisation of the post famine economy the evidence of this article is consistent with the effects of traditional convergence forces such as tfp growth capital accumulation and structural change operating alongside the effects of emigration

secondary currency an empirical analysis abstract many cases exist of multiple currency usage throughout history as two leading examples secondary currencies were widespread during both the great depression in the united states and the 2002 recession in argentina what are the determinants of multiple currency usage and what is the effect on economic activity both issues are empirically addressed using individual level surveys collected by the authors in argentina during 2002 and 2003 the evidence supports the theoretically predicted determinants of secondary currency acceptability put forth in monetary theory in particular findings show that the acceptability of the secondary currency increases when the supply of national currency is low the relative transaction cost of the secondary currency is low and the individual trading technologies are less effective moreover the acceptability of the secondary currency has real effects on economic activity among those who use the secondary currency the monthly income gain is more than 15 of the average argentine s monthly income excluding trades of used goods this amounts to a 0 6 increase in gdp

examining ireland s post famine economic growth performance this paper sets out a short cut method for allocating country level gdp estimates across regions comparing uk regional gdp estimates generated using the short cut method against existing regional gdp figures suggests that it produces acceptable results we make estimates of gdp for the four countries of the uk for each of the census years between 1861 and 1911 irish gdp per worker and per caput grew faster than british these indicators demonstrate weak convergence of the two regions the bulk of the irish performance may be explained by traditional forces such as tfp growth and capital accumulation

foreign banks and foreign currency lending in emerging europe based on survey data from 193 banks in 20 countries we provide the first bank level analysis of the relationship between bank ownership bank funding and foreign currency fx lending across emerging europe our results contradict the widespread view that foreign banks have been driving fx lending to retail clients as a result of easier access to foreign wholesale funding our cross sectional analysis shows that foreign banks do lend more in fx to corporate clients but not to households moreover we find no evidence that wholesale funding had a strong causal effect on fx lending for either foreign or domestic banks panel estimations show that the foreign acquisition of a domestic bank does lead to faster growth in fx lending to households however this is driven by faster growth in household lending in general not by a shift towards fx lending

bank funding securitization and loan terms evidence from foreign currency lending we examine how bank funding structure and securitization activities affect the currency denomination of business loans we analyze a unique data set that includes information on the requested and granted loan currency for 99 490 loans granted to 57 464 firms by a bulgarian bank our findings document that foreign currency lending is at least partially driven by bank eagerness to match the currency structure of assets with that of liabilities our results also show that loan currency as well as loan amount and maturity are adjusted to make loans eligible for securitization

market sentiment and macroeconomic fluctuations under pegged exchange rates this paper models changes in market sentiment as a temporary increase in the premium faced by domestic private borrowers on world capital markets the effects of this shock are studied in an intertemporal optimizing framework of a fixed exchange rate economy where firms demand for working capital is financed by bank credit depending on the perceived length of this shock the model is capable of predicting a rise in domestic interest rates capital outflows and a drop in official reserves a reduction in bank deposits and the supply of credit a fall in private consumption a contraction in output and an increase in unemployment these predictions are consistent with observed facts associated with several recent episodes of turbulence on international financial markets

euroization what factors drive its persistence household data evidence for croatia slovenia and slovakia the question asked in this article is why people continue to use foreign currencies even after their economies have stabilized survey data for croatia slovenia and slovakia are employed to provide an answer the results confirm the role of network effects and of remittances furthermore the extent of currency substitution is found to be positively associated with the level of income and education an important aspect of euroization seems to be age older people are more likely to hold foreign currencies in contrast neither expectations about inflation rates nor about exchange rates do seem to affect the degree of euroization in a systematic and predictable way trust in the banking system is found to affect the choice between foreign currency cash and foreign currency deposits overall the results support the view that the persistence in the use of foreign currencies is driven to a large extent by factors that are related to the past

the transactions demand for money in the presence of currency substitution evidence from vietnam currency substitution the use of foreign money to finance transactions between domestic residents is widespread in low income and transition economies traditionally however empirical models of the demand for money tend to concentrate on the portfolio motive for holding foreign currency while maintaining the assumption that the income elasticity of demand for domestic money is invariant to the degree of currency substitution a simple re specification of the demand for money is offered which more accurately reflects the process of currency substitution by allowing for a variable income elasticity of demand for domestic money this specification is estimated for vietnam in the 1990s using a standard cointegration framework evidence is found for currency substitution only in the long run but well defined wealth effects operating in the short run

fiscal sustainability and dollarization the case of ecuador abstractthis article tries to disentangle the dynamic relationships between fiscal variables and economic activity in a small emerging economy characterized by full dollarization namely ecuador we find that fiscal policy in ecuador seems to be sustainable explained by its policy of debt payment through oil revenues rather than by a fiscal discipline that dollarization is supposed to encourage the non oil tax revenues variable is a purely adjusting variable this result suggests that in a dollarized country that cannot benefit from the seignorage revenues the reliance on volatile oil revenues and on smoothing tax revenues leaves the economy s fiscal sustainability vulnerable

financial dollarization and systemic risks new empirical evidence abstract this paper explores the persistence of financial dollarization in a group of 79 economies with different levels of development our main hypothesis is that a high level of domestic debt combined with default risk explains this persistence even after a decline in inflation rates using the generalized method of moments gmm in a panel data analysis our results show that inflation risks caused by increasing probability of default account for financial dollarization more than inflation rate itself after the decrease in inflation rates the foreign currency denominated deposits remain large because of the high debt to gdp ratios particularly in speculative grade economies high public indebtedness leads to expectations of default dollarization is a rational response to the future inflation associated with investors expectations of default observed in highly indebted economies

dollarization of bank deposits causes and consequences abstract this paper assesses the benefits and risks associated with dollarization of bank deposits we provide novel empirical evidence on the determinants of deposit dollarization its role in promoting financial development and on whether dollarization is associated with financial instability we find that a the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross country variations in dollarization b dollarization is likely to promote financial deepening only in a high inflation environment and c financial instability is likely higher in dollarized economies the implications of these findings for financial sector and monetary policies are briefly discussed

the optimal mix between funded and unfunded pension systems when people care about relative consumption the paper studies the optimal portfolio mix between funded and unfunded pension systems when people care about relative consumption in pay as you go systems with fixed contribution rates pensions are tied to wages this lowers the uncertainty of individuals future relative position thereby increasing the attractiveness of unfunded systems the paper shows analytically that the optimal share of funding decreases with the importance of relative standing a calibrated version of the model suggests that the concern for relative standing has also a quantitatively important impact on the optimal share of funding for reasonable assumptions it is typically around 20

reason for reserve reserve requirements and credit this paper considers the impact of a regulatory policy action on bank credit and traces its incidence across banks i make use of a reserve requirement increase in lebanon that was considerably greater on foreign currency deposits than on domestic currency deposits all banks cut lending as they scrambled to adjust portfolios but the policy shock disproportionately affected banks with a greater reliance on dollar funding and with low buffers of dollar liquid assets exposed domestic owned banks also adjusted more slowly than similar foreign owned banks that obtained outside funding descriptive firm bank matching evidence reveals a disproportionate impact on small firms

foreign currency borrowing by small firms in emerging markets when domestic banks intermediate dollars this paper investigates what induces small firms in an emerging market economy to borrow dollar credit from domestic banks our data are from a unique survey of firms in lebanon the findings complement studies of large firms with foreign currency loans from foreign lenders exporters naturally hedged against currency risk are more likely to incur dollar debt firms also partly hedge themselves by passing currency risk to customers and suppliers less opaque firms with easily verifiable collateral and higher net worth are more likely to access dollar credit firms reliant on formal financing banks and supplier credit are more likely to contract dollar debt than firms reliant on informal financing family friends and moneylenders bank relationships however do not increase the dollar debt likelihood and finally profitable firms are less likely to have dollar debt information frictions and limited collateral therefore constrain dollar credit even when it is intermediated domestically

households foreign currency borrowing in central and eastern europe abstract foreign currency loans represent an important feature of recent financial developments in ceecs this might pose a serious challenge for macroeconomic stability against this background we study the determinants of foreign currency loans of households using data on the behavior of households in nine ceecs our results reveal that foreign currency loans are driven by households lack of trust in the stability of the local currency and in domestic financial institutions moreover special factors including remittances and expectations of euro adoption play an important role in selected regions the financial crisis reduced foreign currency borrowing but there is some indication this effect might be only temporary

the euroization of bank deposits in eastern europe in central eastern and southeastern europe a substantial share of bank deposits are denominated in foreign currency deposit euroization poses key challenges for monetary policy and financial sector supervision on the one hand it limits the effectiveness of monetary policy interventions on the other hand it increases financial sector fragility by exposing banks to currency risk or currency induced credit risk policymakers disagree on whether countries in the region should tackle deposit euroization with dedollarization policies or should rather strive to adopt the euro as their legal tender assessing the potential effectiveness of dedollarization policies requires a clear understanding of which households hold foreign currency deposits and why they do so on the basis of survey data covering 16 375 households in ten countries in 2011 and 2012 we provide a comprehensive household level analysis of deposit euroization in central eastern and southeastern europe we examine how households preferences for and holding of foreign currency deposits are related to individual expectations about monetary conditions and network effects we also examine to what extent monetary expectations and deposit euroization are the legacy of past financial crises or the outflow of current policies and institutions in the region our findings suggest that deposit euroization in central eastern and southeastern europe can be partly tackled by prudent monetary and economic decisions by today s policymakers the preferences of households for euro deposits are partly driven by their distrust in the stability of their domestic currency which in turn is related to their assessment of current policies and institutions however our findings also suggest that a stable monetary policy may not be sufficient to deal with the hysteresis of deposit euroization across the region first we confirm that the holding of foreign currency deposits has become a habit in the region second we find that deposit euroization is still strongly influenced by households experiences of financial crises in the 1990s our findings question the effectiveness of supply side interventions e g bank regulation or demand side interventions e g local currency capital market development in de euroizing household savings first we show that deposit euroization is largely demand driven second we show that households already have access to a broad range of savings products in local currency

a model of crises in emerging markets this paper presents a perfect foresight model of speculative attacks on emerging markets credit constrained governments are assumed to have two objectives to accumulate liquid assets in order to self insure against shocks to national consumption and to insure poorly regulated domestic financial markets this policy regime generates endogenous fiscal deficits defined to include the growth of contingent liabilities the model sets out a sequence of yield differentials consistent with capital inflows followed by anticipated speculative attacks the model suggests that a common shock generated capital inflows to emerging markets in asia and latin america after 1989

business organization segmentation and location taylor m and thrift n 1983 business organization segmentation and location reg studies 17 445 465 this paper is intended to provide a coherent theoretical framework for industrial geography industrial economics and organization theory based on the notion of the segmentation of business organizations the literature on dualism and segmentation of business organizations is reviewed and found wanting an alternative process oriented account of segmentation of the business organization is presented which can account for the structural variations in present day developed economies the geographical implications of the framework are brought out

reflections on china s open policy towards foreign direct investment hayter r and han s s 1998 reflections on china s open policy towards foreign direct investment reg studies 32 1 16 china s open policy of kaifang zhengce assumes that foreign direct investment is an essential mechanism by which technological and other forms of know how regarding best practices can be transferred into the chinese economy yet this transfer cannot be assumed to the extent that the know how desired by china simultaneously defines the competitive advantage of multinational corporations kaifang zhengce is china s geopolitical strategy to resolve this paradox its key features involve combining an explicit spatial strategy within china and reliance on investment by overseas chinese especially firms based in hong kong yet these firms are not foreign as conventionally considered and their contribution to the modernization of china is greater than supposed hayter r et han s s 1998 des reflexions sur la politique d ouverture de la chine a l investissement etranger direct reg

what drives credit dollarization in transition economies abstract this paper provides an in depth analysis of the use of foreign currencies in the lending activities of banks in transition economies the impact of bank and firm variables on credit dollarization is studied in an optimal portfolio allocation model and estimated using new aggregate data for 21 transition economies for the period 1990 2003 empirical results provide evidence that credit dollarization is the combined outcome of domestic deposit dollarization and banks desire for currency matched portfolios beyond regulatory requirements the effects of international financial factors and natural hedges are less robust across alternative specifications the paper further discusses the role of regulations in affecting the impact of these factors on credit dollarization and calls for more developed domestic forward foreign exchange markets

the dynamics of inflation and currency substitution in a small open economy abstract this paper analyzes the relationship between money and inflation in a small open economy where domestic and foreign currencies are perfect substitutes as means of payment it is shown that if the path of domestic money supply is such that individuals find it optimal to change the currency in which transactions are settled there will be an adjustment period during which domestic inflation adjusts to equal the foreign inflation rate the model captures the stylized fact that temporary increases in the inflation rate may have permanent effects in the use of foreign currency even without the introduction of dollarization costs

dollarization exchange rate regimes and government quality abstract 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 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 currency which ultimately stems from the belief that the government will not follow policies that promote long run currency stability empirical results indicate that improved government quality reduces unofficial dollarization while the exchange rate regime plays no direct role in promoting dollarization

different trajectories in the social divisions of labour the cutlery industry in sheffield england and tsubame japan to contribute to the growing debate on the social division of labour and its implications for local development this paper comparatively analyses recent trends in the industrial organisation of the cutlery industry in sheffield and tsubame both industries evolved as flexibly specialised export oriented production systems based on a highly interdependent network of small firms in the past 20 years however the social division of labour underlying sheffield s cutlery industry has been much reduced in size and complexity while tsubame has retained and used its social division of labour to adjust towards more value added production the different trajectories of the two systems reflect different approaches to competitiveness in tsubame the emphasis is on innovation while in sheffield the industry has been extremely conservative placing emphasis on minimising costs