Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212842 
Year of Publication: 
2015
Series/Report no.: 
BOFIT Discussion Papers No. 32/2015
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
We apply empirical modelling set-ups developed to capture the hysteresis effect in the data on deposit dollarization in a cross-section of emerging market economies. Specifically, we estimate a nonlinear relationship that determines two equilibrium levels of deposit dollarization depending on the current value of dollarization and previous episodes of sharp depreciation of the national currency over the past five years. When exchange rates are stable, convergence to a higher equilibrium level of dollarization begins when the 45–50% thresh-old of deposit dollarization is exceeded. We estimate the model for short-run dynamics of dollarization and find that the speed of convergence to the higher equilibrium implies quarterly increases of 1.2–3 percentage points in the ratio of foreign currency deposits to total deposits.
JEL: 
C23
E41
F31
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-072-9
Document Type: 
Working Paper

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