Dollarization of Liabilities : Beyond the Usual Suspects

Dollarization of liabilities (DL) has emerged as a key factor in explaining the vulnerability of emerging markets to financial and currency crises. "Usual suspects" of causing DL comprise "fatalistic" determinants such as a long history of unsound macroeconomic policies and development and institutional factors, aided by moral hazard opportunities related to government guarantees. This paper assesses empirically the relevance of these factors relative to alternative explanations. 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 in explaining DL.
Publication date: January 2003
ISBN: 9781451842807
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Banks and Banking , Banks and Banking , International - Economics , International - Economics , panel data , exchange rate , foreign currency , banking , deposit insurance , bank intervention , Multiple or Simultaneous Equation Models: Models with Panel Data , Financial Markets and the Macroeconomy , International Lending and Debt Problems

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