Assessing Financial Vulnerability in Partial Dollarized Economies

Juan Castro, Eduardo Moron and Diego Winkelried

No 04-03, Working Papers from Centro de Investigación, Universidad del Pacífico

Abstract: The reduction of macroeconomic vulnerability in emerging markets is at the core of the research agenda. Liability dollarization plays a vital role and its implications have been addressed in the literature via a “financial accelerator” mechanism. If we asses vulnerability in terms of the evolution of investment, we claim that, in absence of an asset price channel, departures from a pure float will mitigate vulnerability and improve welfare. Conversely, with an active asset price channel a tighter exchange rate policy will have marginal effects on welfare and vulnerability when compared to that associated to a reduction in liability dollarization.

Keywords: Liability dollarization; financial vulnerability; fear of floating; monetary policy (search for similar items in EconPapers)
Date: 2004-01
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Citations: View citations in EconPapers (4)

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Working Paper: Assessing Financial Vulnerability in Partially Dollarized Economies (2004)
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