Reassessing the feasibility of adopting dollarization in Latin America
Purpose – This paper analyses the possibility of Latin America's (LA) major economies adopting dollarization, considering that in the last decade macroeconomic instability has once again challenged the ability of certain economies to properly manage their own currency. Design/methodology/approa...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2022-07-01
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| Series: | Journal of Economics Finance and Administrative Science |
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| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JEFAS-08-2020-0282/full/pdf?title=reassessing-the-feasibility-of-adopting-dollarization-in-latin-america |
| _version_ | 1811204487598047232 |
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| author | León Padilla |
| author_facet | León Padilla |
| author_sort | León Padilla |
| collection | DOAJ |
| description | Purpose – This paper analyses the possibility of Latin America's (LA) major economies adopting dollarization, considering that in the last decade macroeconomic instability has once again challenged the ability of certain economies to properly manage their own currency. Design/methodology/approach – To determine the feasibility of adopting the US dollar as official currency, the author uses the framework of optimum currency area (OCA) theory, since, in fact, dollarization is an incomplete monetary union. The author uses a structural vector autoregressive (SVAR) model to identify what type of structural shock — country-specific, regional or global — prevails in LA economies. For this purpose, the US output is used to represent the global output and determine how the shocks of the US influence the output trajectory of each LA nation. The higher the influence of the US product, the lower the costs of adopting the US dollar. Findings – The results of the variance decomposition show that the influence of the US shocks in the gross domestic product (GDP) trajectory of LA countries has significantly decreased over the last two decades, even in the currently dollarized economies. The estimates for Venezuela and Argentina show that the importance of US shocks in the trajectory of their GDP is low. Therefore, the cost of adopting the US dollar as the official currency would be high. Originality/value – In view of hyperinflation and macroeconomic imbalances in certain LA nations, the dollarization debate has resurfaced in recent years. However, the literature that empirically evaluates the feasibility of adopting dollarization as a monetary system under current economic conditions is limited. |
| first_indexed | 2024-04-12T03:14:10Z |
| format | Article |
| id | doaj.art-4adda5a37bec4536b76e2d282229b16b |
| institution | Directory Open Access Journal |
| issn | 2077-1886 2218-0648 |
| language | English |
| last_indexed | 2024-04-12T03:14:10Z |
| publishDate | 2022-07-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Journal of Economics Finance and Administrative Science |
| spelling | doaj.art-4adda5a37bec4536b76e2d282229b16b2022-12-22T03:50:14ZengEmerald PublishingJournal of Economics Finance and Administrative Science2077-18862218-06482022-07-012753345110.1108/JEFAS-08-2020-0282682197Reassessing the feasibility of adopting dollarization in Latin AmericaLeón Padilla0Universidad de las Américas, Quito, EcuadorPurpose – This paper analyses the possibility of Latin America's (LA) major economies adopting dollarization, considering that in the last decade macroeconomic instability has once again challenged the ability of certain economies to properly manage their own currency. Design/methodology/approach – To determine the feasibility of adopting the US dollar as official currency, the author uses the framework of optimum currency area (OCA) theory, since, in fact, dollarization is an incomplete monetary union. The author uses a structural vector autoregressive (SVAR) model to identify what type of structural shock — country-specific, regional or global — prevails in LA economies. For this purpose, the US output is used to represent the global output and determine how the shocks of the US influence the output trajectory of each LA nation. The higher the influence of the US product, the lower the costs of adopting the US dollar. Findings – The results of the variance decomposition show that the influence of the US shocks in the gross domestic product (GDP) trajectory of LA countries has significantly decreased over the last two decades, even in the currently dollarized economies. The estimates for Venezuela and Argentina show that the importance of US shocks in the trajectory of their GDP is low. Therefore, the cost of adopting the US dollar as the official currency would be high. Originality/value – In view of hyperinflation and macroeconomic imbalances in certain LA nations, the dollarization debate has resurfaced in recent years. However, the literature that empirically evaluates the feasibility of adopting dollarization as a monetary system under current economic conditions is limited.https://www.emerald.com/insight/content/doi/10.1108/JEFAS-08-2020-0282/full/pdf?title=reassessing-the-feasibility-of-adopting-dollarization-in-latin-americadollarizationmonetary unionslatin americavenezuelaargentinasvare42e52f4f33f36f44 |
| spellingShingle | León Padilla Reassessing the feasibility of adopting dollarization in Latin America Journal of Economics Finance and Administrative Science dollarization monetary unions latin america venezuela argentina svar e42 e52 f4 f33 f36 f44 |
| title | Reassessing the feasibility of adopting dollarization in Latin America |
| title_full | Reassessing the feasibility of adopting dollarization in Latin America |
| title_fullStr | Reassessing the feasibility of adopting dollarization in Latin America |
| title_full_unstemmed | Reassessing the feasibility of adopting dollarization in Latin America |
| title_short | Reassessing the feasibility of adopting dollarization in Latin America |
| title_sort | reassessing the feasibility of adopting dollarization in latin america |
| topic | dollarization monetary unions latin america venezuela argentina svar e42 e52 f4 f33 f36 f44 |
| url | https://www.emerald.com/insight/content/doi/10.1108/JEFAS-08-2020-0282/full/pdf?title=reassessing-the-feasibility-of-adopting-dollarization-in-latin-america |
| work_keys_str_mv | AT leonpadilla reassessingthefeasibilityofadoptingdollarizationinlatinamerica |