 Why Dollarization is so persistent?Paul Castillo and Diego Winkelried in Premio de Banca Central Rodrigo Gómez / Central Banking Award "Rodrigo Gómez" from Centro de Estudios Monetarios Latinoamericanos, CEMLA Abstract: The aim of this paper is to draw the attention to the fact that heterogeneity of depositors can easily explain the persistence of financial dollarization. As pointed out by Granger (1980), differences in individual dynamics lead to aggregate persistence. Thus, as it is reasonable to expect that the dynamics of the optimal currency portfolio of a financial expert differs from that of a blacksmith, a persistent aggregate dollarization ratio arises naturally. There are of course various differences between a financial expert and a blacksmith, but provided that both access the dollar deposit market almost for free, the relevant difference to this analysis centers in their ability to process information and, therefore, to take informed saving decisions. This document provides a simple extension to the MPV approach by considering that depositors are heterogeneous in their ability to process information and to forecast real returns. In particular it is assumed that depositors receive noisy information and that the amount of noise they receive is idiosyncratic. Keywords: Dollarization; Individual heterogeneity; Aggregation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cml:prodgz:prg2006eng Ordering information: This item can be ordered from Access Statistics for this book More books in Premio de Banca Central Rodrigo Gómez / Central Banking Award "Rodrigo Gómez" from Centro de Estudios Monetarios Latinoamericanos, CEMLA Contact information at EDIRC. |
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