Title: «Macroprudential policies and dollarization»
Authors: Andreasen (FEN, U. Chile) & V. Nuguer (IADB)
Abstract: This paper studies the systemic and bank-level effects of imposing differential reserve requirements (RR) by currency in an economy with a heavily dollarized financial system. To this end we focus on the RR imposed by the Peruvian Central Bank since 2008 with the objective of stabilizing the financial market and meeting its policy targets. We use a DSGE small-economy model with financial frictions a la Gertler-Kiyotaki-Karadi, where we introduce bank heterogeneity and financial dollarization to evaluate the effectiveness of the differential RR in reducing financial dollarization and improving financial resilience. Preliminary results suggest that the banks’ response in terms of credit and deposit by type of currency are very heterogeneous depending on the banks’ ex-ante preference for currency exposure, defined as the ratio of deposits in dollars to total loans.
