Financial dollarization equilibria
Subtitle: a framework for policy analysis
By: prepared by Alain Ize.
Contributors: International Monetary Fund. Monetary and Financial Systems Dept.
Series: IMF working paper -- WP/05/186
Publisher: International Monetary Fund, Monetary and Financial Systems Dept.
Published: 2005
Place of publication: Washington, D.C
Language: eng
Number of pages: 29
Subjects: Monetary policy -- Econometric models.; Economic policy -- Econometric models.; Currency question -- Econometric models.; Dollar, American -- Econometric models.; Risk management -- Econometric models.
Description: Rapidly rising dollarization and numerous related financial crises in recent years have heightened the need for policy action. This paper contributes to the policy debate by presenting a common analytic framework that examines the roots of de facto financial dollarization under different economic environments and analyzes its interplay with monetary and prudential policies. In addition to providing a systematic analysis of the existence, stability, and multiplicity of dollarization equilibria, the paper makes a few novel contributions. In particular, it stresses the key role played by monetary policy endogeneity and identifies the underlying determinants of the peso premium that are responsible for inducing a preference for the dollar in financial transactions.
Notes: "September 2005."

"This paper was presented at the Conference on the Policy Implications of De Facto Dollarization, held in Lima, Peru, during April 21-22, 2005."

Includes bibliographical references (p. 29).

Also available on the World Wide Web.