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Basso, Henrique S.
Calvo-Gonzalez, Oscar
Jurgilas, Marius
Year of Publication: 
Series/Report no.: 
ECB Working Paper 748
This paper develops a model to explain the determinants of financial dollarization. Expanding on the existing literature, our framework allows interest rate differentials to play a role in explaining financial dollarization. It also accounts for the increasing presence of foreign banks in the local financial sector. Using a newly compiled data set on transition economies we find that increasing access to foreign funds leads to higher credit dollarization, while it decreases deposit dollarization. Interest rate differentials matter for the dollarization of both loans and deposits. Overall, the empirical results lend support to the predictions of our theoretical model.
Financial Dollarization
Foreign Banks
Interest Rate Differentials
Transition Economies
Document Type: 
Working Paper

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