Marius Jurgilas, assistant professor of economics, presented a paper at the Latin American Meeting of the Econometric Society (LAMES) in Bogotá, Colombia, from Oct. 4-6, 2007.
The paper, “Financial Dollarization: The Role of Banks and Interest Rates”
(ECB WP No.748
), analyzes financial dollarization (use of foreign currency) in transition economies. Why do households and firms in many countries borrow in foreign currencies? Why do they hold deposits in foreign currencies? The paper addresses these questions theoretically and empirically using a newly compiled data set on transition economies, a region which has not been traditionally the focus of the so-called “financial dollarization” literature. This lack of attention by the literature is all the more surprising given that financial dollarization is indeed prevalent, and in some cases growing, among the formerly planned economies. Financial dollarization increases the exposure of agents to exchange rate risk and can therefore become a potential source of macroeconomic and financial instability. Hence, understanding the determinants of financial dollarization is of great interest not only to researchers but also to policy-makers. Data availability and the lack of an overall theoretical framework have hitherto been the main constraints to improving our understanding of financial dollarization. This paper contributes to the literature both theoretically and empirically.
(ECB WP No.748
), analyzes financial dollarization (use of foreign currency) in transition economies. Why do households and firms in many countries borrow in foreign currencies? Why do they hold deposits in foreign currencies? The paper addresses these questions theoretically and empirically using a newly compiled data set on transition economies, a region which has not been traditionally the focus of the so-called “financial dollarization” literature. This lack of attention by the literature is all the more surprising given that financial dollarization is indeed prevalent, and in some cases growing, among the formerly planned economies. Financial dollarization increases the exposure of agents to exchange rate risk and can therefore become a potential source of macroeconomic and financial instability. Hence, understanding the determinants of financial dollarization is of great interest not only to researchers but also to policy-makers. Data availability and the lack of an overall theoretical framework have hitherto been the main constraints to improving our understanding of financial dollarization. This paper contributes to the literature both theoretically and empirically.
This work was also presented at the joint European meeting of the European Economic Association and the Econometric Society (EEA/ESEM) in Budapest, Hungary, August 27 – 31, 2007 by Marius’ co-author.