Resource title

Dollarization, bailouts, and the stability of the banking system

Resource image

image for OpenScout resource :: Dollarization, bailouts, and the stability of the banking system

Resource description

Central bank policy suffers from time-inconsistency when facing a banking crisis : A bailout is optimal ex post but ex ante it should be limited to control moral hazard. Dollarization provides a credible commitment not to help at the cost of not helping even when it would be ex ante optimal to do so. Dollarization is good when the costs of establishing a reputation for the central bank are high, monitoring effort by the banker is important in improving returns, and when the cost of liquidating projects is moderate. However, a very severe moral hazard problem could make dollarization Undesirable. The results obtained are applied to assess the desirability of dollarization in a range of countries and the potential role of the IMF as International LOLR.

Resource author

Douglas Gale, Xavier Vives

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19347

Resource license

Adapt according to the presented license agreement and reference the original author.