Dollarization dynamics: A comment

Emilio Ocampo () and Nicolas Cachanosky

No 855, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: We analyze a recent paper that claims that dollarizing an economy in the presence of a “dollar shortage” will provoke an immediate sharp reduction in real output and welfare. We find many problems with the model that supports this conclusion: confusion about the nature of a dollar shortage and its practical implications, invalid assumptions, invariant calibration in the presence of a regime change and lack of empirical testing. In our opinion, the paper does not make a valuable contribution to the dollarization debate nor provide useful guidance to policymakers. The proposed model is based on unrealistic assumptions and its predictions are contradicted by the available evidence. A more promising and useful line of research would have been to investigate what happens to a dollarized economy in a scenario of exchange rate overshooting and how it compares in relation to other stabilization plans.

Keywords: Dollarization; Dynamics; Dollar shortage (search for similar items in EconPapers)
JEL-codes: E10 E42 E50 F30 F33 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2023-06
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:cem:doctra:855

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