Dollarization and Real Volatility

BASTOURRE, DIEGO; CARRERA, JORGE; FÉLIZ, MARIANO; PANIGO, DEMIAN TUPAC

Paris

Conferencia; Séminaire de l'Atelier Argentine; 2003

Observatoire de l'Argentine

This study gives a non-traditional framework for the evaluation of the convenience of an asymmetric monetary association (such as dollarization), from the point of view of the country that gives up its monetary sovereignty. In the analytical part it is discussed the relationship between dollarization and real volatility in a new model where traditional OCA criterion supporting a positive GDP correlation between partners is neither a necessary nor sufficient condition to reduce output fluctuations (even when prices are sticky and factor mobility is weak). Finally, we show that empirical evidence is very weak in order to support the case for ”official dollarization” in Argentina