Details

Subject(s)

• Dollar, American [Browse]
• Monetary policy [Browse]
• Currency question [Browse]
• Board of Governors of the Federal Reserve System (U.S.) [Browse]

Author

Velasco, Andrés [Browse]

Series

Working paper series (National Bureau of Economic Research) ; Number 8838. [More in this series]

Summary note

This paper discusses major analytical aspects of dollarization and their practical implications. We develop a simple model to stress that dollarization implies the loss of independent monetary policy and of seigniorage, yet the significance of such losses can only be evaluated in conjunction with assumptions about the policymaking process. If the government is benevolent and has no credibility problems, dollarization causes a fall in welfare, which can be measured by the implied seigniorage loss or using Mundellian optimal currency area criteria. However, outcomes are rather different if credibility is absent and dollarization can serve as a commitment device: the welfare impact of dollarization is ambiguous, and seigniorage measures and Mundellian criteria may be misleading indicators of the true cost of dollarization. We also evaluate other implications of dollarization, such as those related to last resort lending and financial stability.

Source of description

Description based on publisher supplied metadata and other sources.

Statement on responsible collection description

Princeton University Library aims to describe library materials in a manner that is respectful to the individuals and communities who create, use, and are represented in the collections we manage. Read more...