Financial dollarization and systemic risksnew empirical evidence

Resumo

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. (C) 2012 Elsevier Ltd. All rights reserved.

Ficha do documento

Tipo

Artigo científico

Ano

2012

Instituição

Elsevier Sci Ltd

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1016/j.jimonfin.2012.03.007

Identificador

oai:repositorio.fgv.br:10438/23268

Palavras-chave

Financial dollarizationRisk of inflationRisk of defaultFinançasInadimplência (Finanças)Dolarização