Financial dollarization

We present a portfolio model of financial intermediation in which currency choice is determined by hedging decisions on both sides of a bank's balance sheet. We show that minimum variance portfolio (MVP) allocations provide a natural benchmark to estimate the scope for dollarization of assets a...

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Autores principales: Ize, A., Yeyati, E.L.
Formato: JOUR
Materias:
Asset substitution
Dollarization
Financial intermediation
banking
currency market
exchange rate
inflation
Acceso en línea:http://hdl.handle.net/20.500.12110/paper_00221996_v59_n2_p323_Ize
Aporte de:
Biblioteca Digital - Facultad de Ciencias Exactas y Naturales (UBA) de Universidad de Buenos Aires
id todo:paper_00221996_v59_n2_p323_Ize
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spelling todo:paper_00221996_v59_n2_p323_Ize2023-10-03T14:28:27Z Financial dollarization Ize, A. Yeyati, E.L. Asset substitution Dollarization Financial intermediation banking currency market exchange rate inflation We present a portfolio model of financial intermediation in which currency choice is determined by hedging decisions on both sides of a bank's balance sheet. We show that minimum variance portfolio (MVP) allocations provide a natural benchmark to estimate the scope for dollarization of assets and liabilities (financial dollarization) as a function of macroeconomic uncertainty. Within this benchmark, we find that financial dollarization displays high persistence whenever the expected volatility of the inflation rate remains high in relation to that of the real exchange rate, even after price stabilization has been achieved. The empirical evidence confirms that MVP dollarization approximates financial dollarization closely for a broad sample of countries. © 2002 Elsevier Science B.V. All rights reserved. JOUR info:eu-repo/semantics/openAccess http://creativecommons.org/licenses/by/2.5/ar http://hdl.handle.net/20.500.12110/paper_00221996_v59_n2_p323_Ize
institution Universidad de Buenos Aires
institution_str I-28
repository_str R-134
collection Biblioteca Digital - Facultad de Ciencias Exactas y Naturales (UBA)
topic Asset substitution
Dollarization
Financial intermediation
banking
currency market
exchange rate
inflation
spellingShingle Asset substitution
Dollarization
Financial intermediation
banking
currency market
exchange rate
inflation
Ize, A.
Yeyati, E.L.
Financial dollarization
topic_facet Asset substitution
Dollarization
Financial intermediation
banking
currency market
exchange rate
inflation
description We present a portfolio model of financial intermediation in which currency choice is determined by hedging decisions on both sides of a bank's balance sheet. We show that minimum variance portfolio (MVP) allocations provide a natural benchmark to estimate the scope for dollarization of assets and liabilities (financial dollarization) as a function of macroeconomic uncertainty. Within this benchmark, we find that financial dollarization displays high persistence whenever the expected volatility of the inflation rate remains high in relation to that of the real exchange rate, even after price stabilization has been achieved. The empirical evidence confirms that MVP dollarization approximates financial dollarization closely for a broad sample of countries. © 2002 Elsevier Science B.V. All rights reserved.
format JOUR
author Ize, A.
Yeyati, E.L.
author_facet Ize, A.
Yeyati, E.L.
author_sort Ize, A.
title Financial dollarization
title_short Financial dollarization
title_full Financial dollarization
title_fullStr Financial dollarization
title_full_unstemmed Financial dollarization
title_sort financial dollarization
url http://hdl.handle.net/20.500.12110/paper_00221996_v59_n2_p323_Ize
work_keys_str_mv AT izea financialdollarization
AT yeyatiel financialdollarization
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