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Partial dollarization and financial frictions in emerging economies

Vasco J. Gabriel, Paul Levine, Bo Yang Orcid Logo

Review of International Economics, Volume: 31, Issue: 2, Pages: 609 - 651

Swansea University Author: Bo Yang Orcid Logo

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DOI (Published version): 10.1111/roie.12639

Abstract

How do financial frictions affect macroeconomic volatility and monetary policy in emerging market economies? This article assesses the empirical relevance of such frictions by estimating a two-bloc emerging market/rest-of-the-world model containing two key features of emerging economies: partial tra...

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Published in: Review of International Economics
ISSN: 0965-7576 1467-9396
Published: Wiley 2023
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URI: https://cronfa.swan.ac.uk/Record/cronfa61172
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first_indexed 2022-09-09T16:25:34Z
last_indexed 2023-01-13T19:21:46Z
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spelling v2 61172 2022-09-09 Partial dollarization and financial frictions in emerging economies d8e17e56a3b9484ba22c3d43807c83bd 0000-0001-5834-6002 Bo Yang Bo Yang true false 2022-09-09 ECON How do financial frictions affect macroeconomic volatility and monetary policy in emerging market economies? This article assesses the empirical relevance of such frictions by estimating a two-bloc emerging market/rest-of-the-world model containing two key features of emerging economies: partial transaction and liability dollarization, and financial frictions where capital financing is partially or totally in foreign currency. Our estimation employs the “one-step approach” which allows us to be “agnostic” regarding nonstationarity in the data and simultaneously estimate structural and trend parameters. Using data for Peru and the US, we find substantial empirical support for both the financial accelerator and partial dollarization mechanisms. The data fit of the baseline model improves with the addition of each of these frictions, exogenous shocks are significantly amplified in their presence and our preferred model captures several important stylized facts of a small emerging open economy. Journal Article Review of International Economics 31 2 609 651 Wiley 0965-7576 1467-9396 dollarization; emerging economies; financial frictions 1 5 2023 2023-05-01 10.1111/roie.12639 http://dx.doi.org/10.1111/roie.12639 COLLEGE NANME Economics COLLEGE CODE ECON Swansea University SU Library paid the OA fee (TA Institutional Deal) Economic and Social Research Council (GrantNumber(s): RES-000-23-1126, RES-061-25-0115); British Academy (GrantNumber(s): SG2122\210952) 2023-08-30T11:52:30.9906069 2022-09-09T17:23:45.3932245 Faculty of Humanities and Social Sciences Vasco J. Gabriel 1 Paul Levine 2 Bo Yang 0000-0001-5834-6002 3 61172__25334__57c3e28c2008411eb115efef0447a133.pdf 61172_VoR.pdf 2022-10-06T14:50:31.2385547 Output 1968405 application/pdf Version of Record true © 2022 The Authors. This is an open access article under the terms of the Creative Commons Attribution License true eng http://creativecommons.org/licenses/by/4.0/
title Partial dollarization and financial frictions in emerging economies
spellingShingle Partial dollarization and financial frictions in emerging economies
Bo Yang
title_short Partial dollarization and financial frictions in emerging economies
title_full Partial dollarization and financial frictions in emerging economies
title_fullStr Partial dollarization and financial frictions in emerging economies
title_full_unstemmed Partial dollarization and financial frictions in emerging economies
title_sort Partial dollarization and financial frictions in emerging economies
author_id_str_mv d8e17e56a3b9484ba22c3d43807c83bd
author_id_fullname_str_mv d8e17e56a3b9484ba22c3d43807c83bd_***_Bo Yang
author Bo Yang
author2 Vasco J. Gabriel
Paul Levine
Bo Yang
format Journal article
container_title Review of International Economics
container_volume 31
container_issue 2
container_start_page 609
publishDate 2023
institution Swansea University
issn 0965-7576
1467-9396
doi_str_mv 10.1111/roie.12639
publisher Wiley
college_str Faculty of Humanities and Social Sciences
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hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
url http://dx.doi.org/10.1111/roie.12639
document_store_str 1
active_str 0
description How do financial frictions affect macroeconomic volatility and monetary policy in emerging market economies? This article assesses the empirical relevance of such frictions by estimating a two-bloc emerging market/rest-of-the-world model containing two key features of emerging economies: partial transaction and liability dollarization, and financial frictions where capital financing is partially or totally in foreign currency. Our estimation employs the “one-step approach” which allows us to be “agnostic” regarding nonstationarity in the data and simultaneously estimate structural and trend parameters. Using data for Peru and the US, we find substantial empirical support for both the financial accelerator and partial dollarization mechanisms. The data fit of the baseline model improves with the addition of each of these frictions, exogenous shocks are significantly amplified in their presence and our preferred model captures several important stylized facts of a small emerging open economy.
published_date 2023-05-01T11:52:31Z
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score 11.037603

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