Financial dollarization: Short-run determinants in transition economies |
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Authors: | Kyriakos C Neanidis Christos S Savva |
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Institution: | aEconomics, University of Manchester and Centre for Growth and Business Cycle Research, Manchester M13 9PL, United Kingdom;bDepartment of Commerce, Finance and Shipping, Cyprus University of Technology, Cyprus |
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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. |
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Keywords: | Currency risk Financial dollarization Short-run variations Transition economies |
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