Publication:
Financial Dollarization and Central Bank Credibility

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dc.contributor.authorCowan, Kevin
dc.contributor.authorDo, Quy-Toan
dc.date.accessioned2014-05-05T20:07:44Z
dc.date.available2014-05-05T20:07:44Z
dc.date.issued2003-06
dc.description.abstractWhy do firms and banks hold foreign currency denominated liabilities? The authors argue that foreign currency debt, by altering the effect of a devaluation on output, has a disciplining effect when the Central Bank's objectives differ from the social optimum. However, under imperfect information, bad priors about the Central Bank induce excess dollarization of liabilities, which in turn limits the ability of the Central Bank to conduct an optimal monetary policy. In addition the economy may become stuck in a "dollarization trap" in which dollarized liabilities limit the ability of agents to learn the true type of the monetary authority. The model has clear-cut policy implications regarding the taxation of foreign currency liabilities as a way to encourage perfect information and avoid dollarization traps. Moreover, it reinforces the existing argument for Central Bank independence. Finally, the authors believe this model to be consistent with a growing empirical literature on the determinants of foreign currency liabilities and their relationships to Central Bank credibility.en
dc.identifierhttp://documents.worldbank.org/curated/en/2003/06/2438507/financial-dollarization-central-bank-credibility
dc.identifier.doi10.1596/1813-9450-3082
dc.identifier.urihttps://hdl.handle.net/10986/18170
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 3082
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectDOLLAR STANDARD
dc.subjectCENTRAL BANKS
dc.subjectFOREIGN CURRENCY DEPOSIT ACCOUNTS
dc.subjectMONETARY POLICY
dc.subjectINFORMATION ACCOUNTING
dc.subjectADVERSE EFFECTS
dc.subjectAGGREGATE DEMAND
dc.subjectARBITRAGE
dc.subjectAVERAGE INFLATION
dc.subjectBALANCE SHEETS
dc.subjectBORROWING
dc.subjectCAPACITY BUILDING
dc.subjectCAPITAL ACCOUNT
dc.subjectCENTRAL BANK
dc.subjectCENTRAL BANK CREDIBILITY
dc.subjectCENTRAL BANKS
dc.subjectCOMPETITIVENESS
dc.subjectDEBT
dc.subjectDEPOSITS
dc.subjectDEVALUATION
dc.subjectDISTORTIONARY EFFECTS
dc.subjectEMERGING ECONOMIES
dc.subjectEMPIRICAL EVIDENCE
dc.subjectEQUILIBRIUM
dc.subjectEQUILIBRIUM ANALYSIS
dc.subjectEXCHANGE RATE
dc.subjectEXCHANGE RATE DEPRECIATION
dc.subjectEXCHANGE RATE POLICIES
dc.subjectEXCHANGE RATE POLICY
dc.subjectEXCHANGE RATE REGIME
dc.subjectEXCHANGE RATE REGIMES
dc.subjectEXCHANGE RATE RISK
dc.subjectEXCHANGE RATES
dc.subjectFINANCIAL CONTRACTS
dc.subjectFINANCIAL DEVELOPMENT
dc.subjectFINANCIAL DOLLARIZATION
dc.subjectFINANCIAL FRAGILITY
dc.subjectFINANCIAL INSTITUTIONS
dc.subjectFOREIGN CURRENCY
dc.subjectFOREIGN CURRENCY DEBT
dc.subjectFUNCTIONAL FORMS
dc.subjectGOVERNMENT DEBT
dc.subjectINCOME
dc.subjectINFLATION
dc.subjectINFORMATION ASYMMETRIES
dc.subjectINSURANCE
dc.subjectINTEREST RATE
dc.subjectINTEREST RATES
dc.subjectLIQUIDITY
dc.subjectMACROECONOMIC IMPLICATIONS
dc.subjectMACROECONOMIC SHOCKS
dc.subjectMACROECONOMIC VARIABLES
dc.subjectMARGINAL BENEFITS
dc.subjectMARGINAL COST
dc.subjectMARGINAL COSTS
dc.subjectMARKET ECONOMIES
dc.subjectMONETARY AUTHORITIES
dc.subjectMONETARY AUTHORITY
dc.subjectMONETARY POLICY
dc.subjectMORAL HAZARD
dc.subjectNET WORTH
dc.subjectOPTIMIZATION
dc.subjectPERFECT COMPETITION
dc.subjectPERFECT INFORMATION
dc.subjectPOLICY CREDIBILITY
dc.subjectPOLICY RESEARCH
dc.subjectPORTFOLIO
dc.subjectPORTFOLIOS
dc.subjectPRIVATE AGENTS
dc.subjectPRODUCTIVITY
dc.subjectPURCHASING POWER
dc.subjectRISK AVERSE
dc.subjectSAVINGS
dc.subjectTAXATION
dc.subjectUTILITY FUNCTION
dc.subjectACCOUNTING
dc.subjectINFORMATION
dc.titleFinancial Dollarization and Central Bank Credibilityen
dspace.entity.typePublication
okr.crossref.titleFinancial Dollarization and Central Bank Credibility
okr.date.doiregistration2025-04-10T09:53:28.482998Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2003/06/2438507/financial-dollarization-central-bank-credibility
okr.globalpracticeMacroeconomics and Fiscal Management
okr.globalpracticeFinance and Markets
okr.guid786021468766830057
okr.identifier.doi10.1596/1813-9450-3082
okr.identifier.externaldocumentum000094946_03071704240895
okr.identifier.internaldocumentum2438507
okr.identifier.reportWPS3082
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/07/26/000094946_03071704240895/Rendered/PDF/multi0page.pdfen
okr.sectorFinance :: Banking
okr.topicEconomic Theory and Research
okr.topicFinance and Financial Sector Development::Financial Intermediation
okr.topicEnvironmental Economics and Policies
okr.topicMacroeconomics and Economic Growth::Macroeconomic Management
okr.topicPayment Systems and Infrastructure
okr.topicMacroeconomics and Economic Growth::Economic Stabilization
okr.topicFiscal and Monetary Policy
okr.unitPoverty Team, Development Research Group
okr.volume1
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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