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Article

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Accepted version

Publication date

2013

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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/107187

Pass-through in dollarized countries: should Ecuador abandon the US dollar?

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https://doi.org/10.1080/00036846.2013.786166

Abstract

In this article, we examine the convenience of dollarization for Ecuador today. As Ecuador is strongly integrated financially and commercially with the United States, the exchange rate pass-through should be zero. However, we sustain that rising rates of imports from trade partners other than the United States and subsequent real effective exchange rate depreciations are causing the pass-through to move away from zero. Here, in the framework of the Vector Error Correction Model, we analyse the impulse response function and variance decomposition of the inflation variable. We show that the developing economy of Ecuador is importing inflation from its main trading partners, most of them emerging countries with appreciated currencies. We argue that if Ecuador recovered both its monetary and exchange rate instruments, it would be able to fight against inflation. We believe such an analysis could be extended to other countries with pegged exchange rate regimes.

Subject

Finances internacionals, Dòlar nord-americà, Mercat financer, Màrqueting de relacions, Equador

Subject (English)

International finance, American dollar, Financial market, Relationship marketing, Ecuador

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Articles publicats en revistes (Economia)

Citation

MARÍ DEL CRISTO, María Lorena and GÓMEZ-PUIG, Marta. Pass-through in dollarized countries: should Ecuador abandon the US dollar?. Applied Economics. 2013. Vol. 45, num. 31, pags. 4395-4411. ISSN 0003-6846. [consulted: 12 of June of 2026]. Available at: https://hdl.handle.net/2445/107187

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