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Financial Dollarization in Emerging Markets: Efficient Risk Sharing or Prescription for Disaster?

Summary:
Lawrence Christiano, Hüsnü Dalgic & Armen Nurbekyan in this NBER paper: This paper pushes back against two views about the effects of dollarization. First, there is a view that the dollar is a device by which rich countries provide business cycle insurance to emerging market (EME) countries. We find that the dollar is important for risk sharing, but the evidence suggests that it is primarily a device to shift business cycle risk across different people within individual EMEs and within rich countries rather than across countries. Second, there is a widespread view that dollarization raises the risk of systemic banking and other crises. Although we identify sources of fragility in some aspects of dollarization, the common view that financial dollarization is a source of fragility

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Lawrence Christiano, Hüsnü Dalgic & Armen Nurbekyan in this NBER paper:

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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