Financial Dollarization of Households and Firms: Does It Differ?

January 22, 2019

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Juan S Corrales, and Patrick A. Imam Financial Dollarization of Households and Firms: Does It Differ?, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Using a newly complied and extended database from International Financial Statistics, and applying different panel-regression techniques, this paper documents the evolution of households’ and firms’ dollarization over the past decade. We assess the macroeconomic determinants of dollarization for households and firms and explore differences between high and low-income countries. We find that households’ and firms’ dollarization in loans and deposits are weakly explained by the currency substitution model, except in low income countries, where inflation plays a significant role. Instead, market development variables such as financial deepening, access to external debt and FX finance as well as other market considerations are key to explain the dynamics of deposits and loans dollarization, regardless of the level of income.These factors can account for a significant fraction of the dollarization, but using a variance decomposition model, there is evidence that a non-negligible portion has yet to be explained. This suggests that there are key determinants for household and firm dollarization that are not fully captured by traditional macroeconomic explanatory variables.

Subject: Currencies, Dollarization, Financial institutions, Foreign exchange, Loans, Monetary policy, Money, National accounts, Personal income

Keywords: Credit dollarization, Currencies, Deposit dollarization, Dollarization, Dollarization behavior, Dollarization data, Dollarization of firm, Dollarization of household, Eastern Europe, Financial deepening, Firm, Firms dollarization, Firms' loan, Foreign currency, Funis deposits dollarization, FX loan, Household, Household dollarization, Interest rate, Loan dollarization, Loans, Personal income, Private sector, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/019
Stock No:

WPIEA2019019
ISBN:

9781484393192
ISSN:

1018-5941

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