Deposit dollarization and the financial sector in emerging economies

By Patrick Honohan, A. Shi. 2002

114 citations recorded by the source corpus.

Analyzing new data, the authors find that the general trend toward increased use of foreign-currency-denominated bank deposits in emerging markets has continued, despite declines in a few countries. Their analysis of the new data suggests that a sizable fraction (about half, on average) of funds switched to dollar deposit accounts are effectively exported through the banking system, thereby reducing the supply of credit. Moreover, increases in deposit dollarization are associated with increases in offshore deposits, which probably helps to explain the authors' finding that dollarization is associated with an increase in banking spreads. The authors' evidence supports, though only weakly, the conjecture that dollarization would tend to raise wholesale interest rates systematically through a peso premium. In contrast, greater dollarization is clearly associated with a higher pass-through coefficient from exchange rate change to consumer prices, potentially increasing nominal risk in the economy.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e0d5163f02cf727e644db118417049fe14f7755d

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Living with Flexible Exchange Rates: Issues and Recent Experience in Inflation Targeting Emerging Market Economies (2003, unknown): “It should also be noted that there is very little overlap between our sample and the one used by Honohan and Shi (2002). 28 The regression excluding Switzerland yields R(2) = 0.”
Dollarization of bank deposits: Causes and consequences (2005, background): “12 Honohan and Shi (2003) did examine the effects on interest rate spreads and on the ratio of local loans to deposits).”
Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration (2008, unknown): “Data on dollar deposits comes from Levy Yeyati (2006), who, in turn, builds upon the dataset used by Honohan and Shi (2002).”
On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects (2004, unknown): “with bankruptcies, models such as Izquierdo (1999) or Arellano and Mendoza (2002) help rationalize the effects of changes in the RER on output via credit contraction, where the relevant”