TY  - JOUR
AU  - Chang,Roberto
AU  - Velasco,Andres
TI  - Dollarization: Analytical Issues
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8838
PY  - 2002
Y2  - March 2002
UR  - http://www.nber.org/papers/w8838
L1  - http://www.nber.org/papers/w8838.pdf
N1  - Author contact info:
Roberto Chang
Rutgers University
Department of Economics
75 Hamilton Street
New Brunswick, NJ  08901
Tel: 732/932-7269
Fax: 732/932-7416
E-Mail: chang@econ.rutgers.edu

Andres Velasco
Marne 2962
Las Condes.
Santiago
CHILE
Tel: 56983616001
E-Mail: avbranes@gmail.com
AB  - 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.
ER  -