Deposit dollarization in emerging markets: modelling the hysteresis effect

Anna Krupkina () and Alexey Ponomarenko
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Anna Krupkina: Bank of Russia, Russian Federation

No wps7, Bank of Russia Working Paper Series from Bank of Russia

Abstract: We apply empirical modelling set-ups developed to capture the hysteresis effect to the data on deposits dollar-ization in a cross-section of emerging market economies. Namely, we estimate nonlinear relationship that determines two equilibrium levels of deposit dollarization depending on its current dollarization value and the preceding episodes of sharp depreciation of the national currency over the past five years. When exchange rates are stable convergence to-wards higher equilibrium level of dollarization begins when the 45-50% threshold of deposit dollarization is exceeded. We estimate the model for short-run dynamics of dollarization and find that the speed of convergence towards higher equilibrium implies quarterly increase of the foreign currency deposits to total deposits ratio by 1.2-3 percentage points.

Keywords: dollarization; hysteresis; nonlinear model; emerging markets. (search for similar items in EconPapers)
JEL-codes: C23 E41 F31 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2015-06
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Deposit dollarization in emerging markets: modelling the hysteresis effect (2017)
Working Paper: Deposit dollarization in emerging markets: modelling the hysteresis effect (2015)
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