Financial Dollarization: Efficient Intranational Risk Sharing or Prescription for Disaster?

Lawrence Christiano, Husnu Dalgic and Armen Nurbekyan ()

No 29034, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A large literature focuses on the implications of the dollar for international risk sharing. In contrast, we find evidence that most of the risk sharing associated with the dollar is intranational rather than international. It is sometimes suggested that the insurance benefits of the dollar are undone by an increased risk of financial fragility. We display empirical evidence that this concern is over-stated. We develop a simple model formalizing our findings about the insurance role of the dollar, which is consistent with the key cross-country facts on interest rate differentials, deposit dollarization and exchange rate depreciations in recessions.

JEL-codes: F3 F4 G15 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-fdg, nep-ias, nep-isf, nep-mon, nep-opm and nep-tra
Note: EFG IFM
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