Dollarization and the relationship between EMBI and fundamentals in Latin American countries

Produced by: 
Universitat de Barcelona
Available from: 
February 2014
Paper author(s): 
María Lorena Mari del Cristo (Department of Economic Theory, Universitat de Barcelona)
Marta Gómez-Puig (Department of Economic Theory, Universitat de Barcelona)
Topic: 
Macroeconomics - Economic growth - Monetary Policy
Theory
Year: 
2014

This paper presents empirical evidence on the interrelationship that exists between the evolution of the Emerging Markets Bonds Index (EMBI) and some macroeconomic variables in seven Latin American countries; two of them (Ecuador and Panama), full dollarized. We make use of a Cointegrated Vector framework to analyze the short run effects from 2001 to 2009. The results suggest that EMBI is more stable in dollarized countries and that its evolution influences economic activity in non-dollarized economies; suggesting that investors confidence might be higher in dollarized countries where real and financial economic evolution are less tied than in non-dollarized ones.

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