Template-Type: ReDIF-Paper 1.0
Author-Name: Anna Krupkina
Author-Email: KrupkinaAS@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Alexey Ponomarenko
Author-Email: PonomarenkoAA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation


Title:  Deposit dollarization in emerging markets: modelling the hysteresis effect
Abstract: We apply empirical modelling set-ups developed to capture the hysteresis effect to the data on deposits dollar-ization in a cross-section of emerging market economies. Namely, we estimate nonlinear relationship that determines two equilibrium levels of deposit dollarization depending on its current dollarization value and the preceding episodes of sharp depreciation of the national currency over the past five years. When exchange rates are stable convergence to-wards higher equilibrium level of dollarization begins when the 45-50% threshold of deposit dollarization is exceeded. We estimate the model for short-run dynamics of dollarization and find that the speed of convergence towards higher equilibrium implies quarterly increase of the foreign currency deposits to total deposits ratio by 1.2-3 percentage points.

Length: 21 pages
Creation-Date: 2015-06
Revision-Date:
Publication-Status:
File-URL: http://www.cbr.ru/Content/Document/File/87549/wps_7_e.pdf
File-Format: Application/pdf
File-Function:
Number:wps7
Classification-JEL: C23, E41, F31.
Keywords: dollarization, hysteresis, nonlinear model, emerging markets.
Handle: RePEc:bkr:wpaper:wps7