Dollarization as an Investment Signal in Developing Countries: The Case of Croatia, Czech Republic, Peru, Slovak Republic and Turkey

Emre Ozsoz, Erick Rengifo and Dominick Salvatore
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Erick Rengifo: Fordham University, Department of Economics

Fordham Economics Discussion Paper Series from Fordham University, Department of Economics

Abstract: In dollarized financial systems, there exists a currency mismatch risk that could lead to financial crises. Central Banks in such economies have to adjust their foreign currency policies accordingly. This paper estimates the probability of Central Bankers' intervention in the foreign currency markets in dollarized economies as explained by the volatility measures of the local exchange rate. By employing data from five countries, we show that in controlled inflation environments, not only Central Banks' interventions but also the direction of the interventions can be predicted to a good degree while under high inflation our model fails to provide healthy results.

Keywords: Central Bank Intervention; Foreign Exchange Rates; Dollarization; Ordered Probit (search for similar items in EconPapers)
JEL-codes: E58 F31 G15 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cwa, nep-ifn, nep-mac, nep-mon and nep-tra
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:frd:wpaper:dp2008-16

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