Policies for Transactional De-Dollarization: A Laboratory Study
Published in Journal of Economic Behavior and Organization, 200, 31-54, 2022
Recommended citation: Arrieta Vidal, J., Florian, D., Lopez Vargas, K., and Morales, V. (2022). Policies for Transactional De-Dollarization: A Laboratory Study. Journal of Economic Behavior and Organization, 200, 31-54. https://doi.org/10.1016/j.jebo.2022.05.012
Partial currency substitution is common in small open economies after macroeconomic crises. Even when aggregate stability returns, foreign-currency use can persist in domestic transactions and weaken monetary policy transmission.
This paper studies two interventions intended to reduce transactional dollarization: (1) taxes on domestic transactions in foreign currency and (2) lower storage costs for local currency. We extend the Matsuyama et al. (1993) framework and test the mechanisms in laboratory data.
The results show that both policies increase local-currency usage, with stronger and more robust effects from reducing local-currency storage costs.