Domestic Price Dollarization in Emerging Economies

Andres Drenik and Diego Perez

No 27647, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the dollarization of prices in retail markets of emerging economies. We develop a model of the firm’s optimal currency choice in retail markets in inflationary economies. We derive theoretical predictions regarding the optimality of dollar pricing, and test them using data from the largest e-trade platform in Latin America. Across countries, price dollarization is positively correlated with asset dollarization and inflation, and negatively correlated with exchange rate volatility. At the micro level, larger sellers are more likely to price in dollars, and more tradeable goods are more likely to be posted in dollars. We then show that prices are sticky, and hence the currency of prices determines the short-run reaction of both prices and quantities to a nominal exchange rate shock.

JEL-codes: E31 F41 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-mon and nep-opm
Note: IFM ME
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published as Andrés Drenik & Diego J. Perez, 2021. "Domestic price dollarization in emerging economies," Journal of Monetary Economics, vol 122, pages 38-55.

Downloads: (external link)
http://www.nber.org/papers/w27647.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27647

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27647

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().