Financial dollarization: Short-run determinants in transition economies

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Abstract

This paper examines the determinants of financial dollarization in transition economies from a short-run perspective. Using aggregate monthly data of deposit and loan dollarization we study the drivers of short-term fluctuations in dollarization and test their importance at different levels of dollarization. The results provide evidence that (a) the positive (negative) short-run effects of depreciation (monetary expansion) on deposit dollarization are exacerbated in high-dollarization countries; (b) short-run loan dollarization is mainly driven by banks matching of domestic loans and deposits, currency matching of assets and liabilities, international financial integration, and institutional quality; and (c) both types of short-run dollarization are affected by interest rate differentials and deviations from desired dollarization. © 2009 Elsevier B.V. All rights reserved.

Bibliographical metadata

Original languageEnglish
Pages (from-to)1860-1873
Number of pages13
JournalJournal of Banking and Finance
Volume33
Issue number10
DOIs
Publication statusPublished - Oct 2009