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Mr. Juan S Corrales and Patrick A. Imam
Using a newly complied and extended database from International Financial Statistics, and applying different panel-regression techniques, this paper documents the evolution of households’ and firms’ dollarization over the past decade. We assess the macroeconomic determinants of dollarization for households and firms and explore differences between high and low-income countries. We find that households’ and firms’ dollarization in loans and deposits are weakly explained by the currency substitution model, except in low income countries, where inflation plays a significant role. Instead, market development variables such as financial deepening, access to external debt and FX finance as well as other market considerations are key to explain the dynamics of deposits and loans dollarization, regardless of the level of income.These factors can account for a significant fraction of the dollarization, but using a variance decomposition model, there is evidence that a non-negligible portion has yet to be explained. This suggests that there are key determinants for household and firm dollarization that are not fully captured by traditional macroeconomic explanatory variables.
Mr. Juan S Corrales and Patrick A. Imam

0.193 0.0800 0.0299 0.00220 0.00220 R-sq, within 0.144 0.337 0.153 0.367 0.367 Heteroskedasticity, p-value 0 0 0 0 2.77e-09 Wald test 0 0 Hansman test 0.159 1.63e-06 Autocorrelation, p-value 0 3.24e-05 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 Among currency substitution variables, inflation appears as a significant contributor to increasing deposit dollarization of firms in lower income

Herman Kamil

⁢                                                                                                                                                                                                                                                                                                                                                                                                                               ( 1 ) Equation (1) represents a reduced form equation which models DOLL ijct , the share of total liabilities denominated or indexed to a foreign currency (typically the dollar) of firm i in sector j , in country c in year t . Thus, DOLL ijct is between 0 and 1. FLEXDate is a binary dummy variable that takes the value of 1 the year a country switches to a flexible regime and 0 otherwise. PostFLEX is a binary variable that also varies across countries and time, and takes on the value of 1 after the year the country switched to

Herman Kamil
Using a unique dataset with information on the currency composition of firms' assets and liabilities in six Latin-American countries, I investigate how the choice of exchange rate regime affects firms' foreign currency borrowing decisions and the associated currency mismatches in their balance sheets. I find that after countries switch from pegged to floating exchange rate regimes, firms reduce their levels of foreign currency exposures, in two ways. First, they reduce the share of debt contracted in foreign currency. Second, firms match more systematically their foreign currency liabilities with assets denominated in foreign currency and export revenues--effectively reducing their vulnerability to exchange rate shocks. More broadly, the study provides novel evidence on the impact of exchange rate regimes on the level of un-hedged foreign currency debt in the corporate sector and thus on aggregate financial stability.