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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

dollarization of households and firms and their contribution to the changes in dollarization levels in SSA over time are illustrated in section IV . Section V concludes. II. Literature Review The literature on dollarization has typically focused only on aggregate (household plus firm) deposit and/or credit dollarization (e.g. Nicolo, Honohan, and Ize, 2005, Levy-Yeyati, 2006 , Stix, 2013 ). This is surprising, as households and firms have in principle different reaction functions to dollarization. This limited research interest by the profession so far is largely

Mr. Juan S Corrales and Patrick A. Imam

Front Matter Page African Department Financial Dollarization of Households and Firms: Does It Differ? Prepared by Juan-Sebastian Corrales and Patrick A. Imam 1 Authorized for distribution by Gene Leon Contents I. Introduction II. Literature Review III. Dynamics of Households and Firms’ Dollarization IV. Determinants of Households and Firms’ Dollarization V. Contributions to dollarization VI. Conclusions and policy implications FIGURES 1. Private Sector Financial Dollarization 2. Correlation between Loans and

International Monetary Fund. Western Hemisphere Dept.

intensification of sovereign and banking strains in advanced countries would not have a large direct impact on credit or the financial system in Costa Rica ( Box 3 ). Stress test exercises conducted by bank supervisors in 2012 yielded similar results. Although the banking sector has a long open foreign exchange position, a large depreciation of the colón may impact asset quality, given large unhedged liability dollarization of households and corporations. Financial Soundness Indicators (in percent) 1/ Costa Rica Guatemala El Salvador Honduras

International Monetary Fund. Western Hemisphere Dept.

China (26.3 gap) and above the critical threshold of 10 percentage points. Under stressed conditions-a 250-basis-point increase in interest rates and assuming 100-per-cent pass-through—the debt service ratio for interest payments would rise from 3.6 percent to 7.9 percent, or 13.4 cents for every dollar of household disposable income. 11 British Colombia authorities noted that foreign buyers accounted for 12.8 percent of the total value of property transfers in the province between June 10 and August 1, 2016, just before the measure was introduced, and the

International Monetary Fund. Western Hemisphere Dept.

financial sector has a ratio of 1. 1/ The exchange rate appreciated by 15 percent in 2016 (year-on-year). Negative earnings indicates losses. 8. While dollarization of overall household credit has fallen, certain subcategories are still significantly dollarized and vulnerable to FX depreciation . Dollarization of household credit portfolios fell to 12.7 percent by end-February 2017 (December 2015:15.9 percent). While mortgages represent only 15 percent of total financial system credit, mortgage loans still reflect significant dollarization, at 21.4 in February 2017

International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights that Canadian economy has regained momentum, supported by the authorities’ pro-active growth strategy, but complex adjustments are still at play. Although personal consumption is robust, business investment remains weak, nonenergy exports have underperformed, and housing market imbalances have risen. Externally, the global outlook has improved, but uncertainty surrounding global trade and risks of economic fragmentation may negatively affect the durability of the Canadian recovery. A strong United States economy, expansionary fiscal and monetary policy, and stable oil prices are expected to lift real GDP growth to 2.5 percent in 2017 and 1.9 percent in 2018. Residential construction is expected to expand at a more moderate pace, reflecting tighter macroprudential measures.
International Monetary Fund. Western Hemisphere Dept.

continue to have a long FX position. Staff estimates suggest that intensification of sovereign and banking strains in advanced countries would not have a large direct impact on credit in Costa Rica ( Figure 5 and AN 2). Stress test exercises conducted by bank supervisors yield similar results. Nevertheless, a large depreciation of the colón may impact asset quality, given unhedged liability dollarization of households and corporations. Staff analysis indicates, however, that risks from currency and maturity mismatches are limited and concentrated in the non

International Monetary Fund. Western Hemisphere Dept.
This article is an analytical report of the economic developments of Costa Rica. The economy showed rapid growth in the aftermath of the global crisis with low inflation; but for further stable growth, certain policy frameworks and reforms need to be reinforced. The fiscal stance should be made tighter to mitigate risks of inflation and external imbalances. Interest rates and exchange rates must be increased, and monetary policy should be tightened for price stability. The Executive Board welcomes these measures for structural potential growth.
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights Peru’s average growth of more than 5.25 percent since 2000, which has led to significantly reduced unemployment and poverty. Inflation is in low single digits, the fiscal position has strengthened, and dollarization has declined markedly. Growth is expected to remain high relative to the region. In particular, GDP growth is projected to slow to about 2.7 percent in 2017, before bouncing back to over 3.75 percent in 2018, as reconstruction spending filters through the economy and projects delayed owing to the Odebrecht scandal start to catch up. Inflation should gradually return to the target range as weather-related factors abate and food price inflation declines.