How does dollarization affect real volatility and country risk?

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This study gives a non-traditional framework for the evaluation of the convenience of an asymmetric monetary association (such as dollarization), from the point of view of the country that gives up its monetary sovereignty. In the analytical part we discuss the relationship between nominal volatilit...

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Detalles Bibliográficos
Autores principales: Carrera, Jorge Eduardo, Féliz, Mariano, Panigo, Demian
Formato: Documento de conferencia publishedVersion
Lenguaje:Inglés
Publicado: 2000
Materias:
Economía
Monetary union
Dollarization
VECM
Risk
Volatility
Transmission channels
Acceso en línea:https://www.memoria.fahce.unlp.edu.ar/trab_eventos/ev.10576/ev.10576.pdf
Aporte de:
Memoria Académica - FaHCE (UNLP) de Universidad Nacional de La Plata
id I19-R125-Jev10576
record_format dspace
institution Universidad Nacional de La Plata
institution_str I-19
repository_str R-125
collection Memoria Académica - FaHCE (UNLP)
language Inglés
orig_language_str_mv eng
topic Economía
Monetary union
Dollarization
VECM
Risk
Volatility
Transmission channels
spellingShingle Economía
Monetary union
Dollarization
VECM
Risk
Volatility
Transmission channels
Carrera, Jorge Eduardo
Féliz, Mariano
Panigo, Demian
How does dollarization affect real volatility and country risk?
topic_facet Economía
Monetary union
Dollarization
VECM
Risk
Volatility
Transmission channels
description This study gives a non-traditional framework for the evaluation of the convenience of an asymmetric monetary association (such as dollarization), from the point of view of the country that gives up its monetary sovereignty. In the analytical part we discuss the relationship between nominal volatility, real volatility and country risk. Given the social loss function of the policymaker, we determine the necessary conditions for dollarization to improve social welfare. With this in mind, we concentrate in the analysis of two main aspects: 1) the degree of synchronization existing between the cycle of the leader and associated country, and 2) the effect and relative importance of the different channels (the trade and financial channels) that transmit the shocks from the central country (the United States). In the empirical part we perform an application of our analytical framework to the case of Argentina. To estimate the synchronization of the business cycles we use the coefficient of cyclical correlation, calculated for four different methodologies of de-trending. The effect and relative importance of the financial channel and the trade channel were extracted from the impulse-response functions and variance decompositions of a Vector Error Correction Model (VECM). We analyze the stability of the results altering the order of the variables, re-estimating the model with rolling sub-samples and modifying the deterministic component in the error correction mechanism. As a general result dollarization in Argentina would not only reduce the risk of devaluation but also reduce the real volatility of the economy and so the country risk. For that reason, from the financial point of view the advantages of dollarization will depend on how much society values the alternative of keeping open the possibility of adjusting to extraordinary shocks with the exchange rate parity
format Documento de conferencia
Documento de conferencia
publishedVersion
author Carrera, Jorge Eduardo
Féliz, Mariano
Panigo, Demian
author_facet Carrera, Jorge Eduardo
Féliz, Mariano
Panigo, Demian
author_sort Carrera, Jorge Eduardo
title How does dollarization affect real volatility and country risk?
title_short How does dollarization affect real volatility and country risk?
title_full How does dollarization affect real volatility and country risk?
title_fullStr How does dollarization affect real volatility and country risk?
title_full_unstemmed How does dollarization affect real volatility and country risk?
title_sort how does dollarization affect real volatility and country risk?
publishDate 2000
url https://www.memoria.fahce.unlp.edu.ar/trab_eventos/ev.10576/ev.10576.pdf
work_keys_str_mv AT carrerajorgeeduardo howdoesdollarizationaffectrealvolatilityandcountryrisk
AT felizmariano howdoesdollarizationaffectrealvolatilityandcountryrisk
AT panigodemian howdoesdollarizationaffectrealvolatilityandcountryrisk
bdutipo_str Repositorios
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