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Is there a link between dollarization and banking crises?
Author(s) -
Honig Adam
Publication year - 2006
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.1285
Subject(s) - liberian dollar , emerging markets , monetary economics , debt , vulnerability (computing) , economics , business , multivariate probit model , financial system , probit model , finance , econometrics , computer security , computer science
I estimate a multivariate probit model to identify key variables that are predictive of banking crises. To add to the literature on this subject, I focus on the role played by unofficial dollarization of domestic banking systems. Unofficial dollarization is a source of vulnerability for emerging markets as large depreciations render both domestic firms and banks unable to pay dollar‐denominated debt. Surprisingly, I find only weak evidence that unofficial dollarization affects the probability of a banking crisis. This finding casts doubt on the widely held belief that liability dollarization is a significant source of risk for emerging markets and developing nations, although there are still reasons to believe that dollarization remains a significant source of risk. Copyright © 2006 John Wiley & Sons, Ltd.