Default Risk and Dollarization in Mexico

William C Gruben and John H Welch

Journal of Money, Credit and Banking, 1996, vol. 28, issue 3, pages 393-401

Abstract: Most empirical evidence of dollarization in Latin America accords with the theoretical claim that increases in expected devaluation increase dollarization. But John H. Rogers (1992) finds that, between 1978 and 1982, relative holdings of Mexdollars were negatively related to expected devaluation. Expected returns on Mexdollar deposits, however, depended on the solvency of the banking system. The authors investigate these links. They find that banking system insolvency decreases Mexdollar deposit demand and increases peso deposit demand. Once these effects are controlled for, Mexdollar demand increases with expected devaluation, even between 1978 and 1982. Copyright 1996 by Ohio State University Press.

Date: 1996
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Persistent link: http://EconPapers.repec.org/RePEc:mcb:jmoncb:v:28:y:1996:i:3:p:393-401

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