The twin risks in the dollarization debate: country and devaluation risks

Autores
Druck, Pablo; Morón, Eduardo
Año de publicación
2001
Idioma
inglés
Tipo de recurso
documento de conferencia
Estado
versión publicada
Descripción
This paper discusses dollarization from the perspective of the relation between country and devaluation risk. In the absence of balance sheet effects, we find that a full dollarization of an economy increases its country risk. On the other hand, when balance sheet effects are present, the full dollarization could reduce country risk. The link between these two risks is based on the government's financial needs. In this paper government devalue the currency for fiscal purposes. Consequently, a full dollarization closes this avenue transferring the whole cost to bond holders. This paper stresses the idea that dollarization is at the very end a fiscal issue. Empirically, using the ratio of foreign currency deposit on total deposits as a proxy to the balance sheet effect, the paper tests the importance of this variable on country risk. We find that the balance sheet has a positive effect on country risk, in other words, country with higher balance sheet effect should have higher country risk.
Departamento de Economía
Materia
Ciencias Económicas
economía monetaria
política monetaria
Nivel de accesibilidad
acceso abierto
Condiciones de uso
http://creativecommons.org/licenses/by/3.0/
Repositorio
SEDICI (UNLP)
Institución
Universidad Nacional de La Plata
OAI Identificador
oai:sedici.unlp.edu.ar:10915/3774
Acceder
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network_name_str SEDICI (UNLP)
spelling The twin risks in the dollarization debate: country and devaluation risksDruck, PabloMorón, EduardoCiencias Económicaseconomía monetariapolítica monetariaThis paper discusses dollarization from the perspective of the relation between country and devaluation risk. In the absence of balance sheet effects, we find that a full dollarization of an economy increases its country risk. On the other hand, when balance sheet effects are present, the full dollarization could reduce country risk. The link between these two risks is based on the government's financial needs. In this paper government devalue the currency for fiscal purposes. Consequently, a full dollarization closes this avenue transferring the whole cost to bond holders. This paper stresses the idea that dollarization is at the very end a fiscal issue. Empirically, using the ratio of foreign currency deposit on total deposits as a proxy to the balance sheet effect, the paper tests the importance of this variable on country risk. We find that the balance sheet has a positive effect on country risk, in other words, country with higher balance sheet effect should have higher country risk.Departamento de Economía2001-05info:eu-repo/semantics/conferenceObjectinfo:eu-repo/semantics/publishedVersionObjeto de conferenciahttp://purl.org/coar/resource_type/c_5794info:ar-repo/semantics/documentoDeConferenciaapplication/pdfhttp://sedici.unlp.edu.ar/handle/10915/3774enginfo:eu-repo/semantics/altIdentifier/url/http://www.depeco.econo.unlp.edu.ar/jemi/2001/trabajo2.pdfinfo:eu-repo/semantics/openAccesshttp://creativecommons.org/licenses/by/3.0/Creative Commons Attribution 3.0 Unported (CC BY 3.0)reponame:SEDICI (UNLP)instname:Universidad Nacional de La Platainstacron:UNLP2025-10-15T10:41:55Zoai:sedici.unlp.edu.ar:10915/3774Institucionalhttp://sedici.unlp.edu.ar/Universidad públicaNo correspondehttp://sedici.unlp.edu.ar/oai/snrdalira@sedici.unlp.edu.arArgentinaNo correspondeNo correspondeNo correspondeopendoar:13292025-10-15 10:41:55.945SEDICI (UNLP) - Universidad Nacional de La Platafalse
dc.title.none.fl_str_mv The twin risks in the dollarization debate: country and devaluation risks
title The twin risks in the dollarization debate: country and devaluation risks
spellingShingle The twin risks in the dollarization debate: country and devaluation risks
Druck, Pablo
Ciencias Económicas
economía monetaria
política monetaria
title_short The twin risks in the dollarization debate: country and devaluation risks
title_full The twin risks in the dollarization debate: country and devaluation risks
title_fullStr The twin risks in the dollarization debate: country and devaluation risks
title_full_unstemmed The twin risks in the dollarization debate: country and devaluation risks
title_sort The twin risks in the dollarization debate: country and devaluation risks
dc.creator.none.fl_str_mv Druck, Pablo
Morón, Eduardo
author Druck, Pablo
author_facet Druck, Pablo
Morón, Eduardo
author_role author
author2 Morón, Eduardo
author2_role author
dc.subject.none.fl_str_mv Ciencias Económicas
economía monetaria
política monetaria
topic Ciencias Económicas
economía monetaria
política monetaria
dc.description.none.fl_txt_mv This paper discusses dollarization from the perspective of the relation between country and devaluation risk. In the absence of balance sheet effects, we find that a full dollarization of an economy increases its country risk. On the other hand, when balance sheet effects are present, the full dollarization could reduce country risk. The link between these two risks is based on the government's financial needs. In this paper government devalue the currency for fiscal purposes. Consequently, a full dollarization closes this avenue transferring the whole cost to bond holders. This paper stresses the idea that dollarization is at the very end a fiscal issue. Empirically, using the ratio of foreign currency deposit on total deposits as a proxy to the balance sheet effect, the paper tests the importance of this variable on country risk. We find that the balance sheet has a positive effect on country risk, in other words, country with higher balance sheet effect should have higher country risk.
Departamento de Economía
description This paper discusses dollarization from the perspective of the relation between country and devaluation risk. In the absence of balance sheet effects, we find that a full dollarization of an economy increases its country risk. On the other hand, when balance sheet effects are present, the full dollarization could reduce country risk. The link between these two risks is based on the government's financial needs. In this paper government devalue the currency for fiscal purposes. Consequently, a full dollarization closes this avenue transferring the whole cost to bond holders. This paper stresses the idea that dollarization is at the very end a fiscal issue. Empirically, using the ratio of foreign currency deposit on total deposits as a proxy to the balance sheet effect, the paper tests the importance of this variable on country risk. We find that the balance sheet has a positive effect on country risk, in other words, country with higher balance sheet effect should have higher country risk.
publishDate 2001
dc.date.none.fl_str_mv 2001-05
dc.type.none.fl_str_mv info:eu-repo/semantics/conferenceObject
info:eu-repo/semantics/publishedVersion
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dc.identifier.none.fl_str_mv http://sedici.unlp.edu.ar/handle/10915/3774
url http://sedici.unlp.edu.ar/handle/10915/3774
dc.language.none.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv info:eu-repo/semantics/altIdentifier/url/http://www.depeco.econo.unlp.edu.ar/jemi/2001/trabajo2.pdf
dc.rights.none.fl_str_mv info:eu-repo/semantics/openAccess
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Creative Commons Attribution 3.0 Unported (CC BY 3.0)
eu_rights_str_mv openAccess
rights_invalid_str_mv http://creativecommons.org/licenses/by/3.0/
Creative Commons Attribution 3.0 Unported (CC BY 3.0)
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dc.source.none.fl_str_mv reponame:SEDICI (UNLP)
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reponame_str SEDICI (UNLP)
collection SEDICI (UNLP)
instname_str Universidad Nacional de La Plata
instacron_str UNLP
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repository.name.fl_str_mv SEDICI (UNLP) - Universidad Nacional de La Plata
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