Dollarization Dilemma
Cambodia has recorded both rapid economic growth and macroeconomic stability in recent decades despite (or thanks to) high levels of dollarization. Previous studies on dollarization in Cambodia have largely focused on examining its causes and estimating seigniorage losses. As an attempt to further explore the effects of dollarization in Cambodia, this paper examines its impact on the competitiveness of the export sector. The main results, based on a vector autoregression estimation of quarterly data over 1994Q4-2016Q4, indicate that a positive US interest rate shock has a negative impact on Cambodia's trade balance with the European Union, its main trading partner, as it leads to appreciation of the US dollar. Furthermore, this shock also leads to a significant decrease in Cambodia's international reserve levels during the first two quarters following the shock. The surrendering of monetary and exchange rate independence seems to affect the competitiveness of the tradable sector negatively as well as exacerbate financial sector vulnerability to solvency and liquidity risks.
| Main Authors: | , , |
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| Format: | Working Paper biblioteca |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019-06
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| Subjects: | MONETARY POLICY, EXCHANGE RATE REGIME, DOLLARIZATION, EXPORT COMPETITIVENESS, INTEREST RATE SHOCK, |
| Online Access: | http://documents.worldbank.org/curated/en/249731560785850537/Dollarization-Dilemma-Price-Stability-at-the-Cost-of-External-Competitiveness-in-Cambodia https://hdl.handle.net/10986/31906 |
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| Summary: | Cambodia has recorded both rapid
economic growth and macroeconomic stability in recent
decades despite (or thanks to) high levels of dollarization.
Previous studies on dollarization in Cambodia have largely
focused on examining its causes and estimating seigniorage
losses. As an attempt to further explore the effects of
dollarization in Cambodia, this paper examines its impact on
the competitiveness of the export sector. The main results,
based on a vector autoregression estimation of quarterly
data over 1994Q4-2016Q4, indicate that a positive US
interest rate shock has a negative impact on Cambodia's
trade balance with the European Union, its main trading
partner, as it leads to appreciation of the US dollar.
Furthermore, this shock also leads to a significant decrease
in Cambodia's international reserve levels during the
first two quarters following the shock. The surrendering of
monetary and exchange rate independence seems to affect the
competitiveness of the tradable sector negatively as well as
exacerbate financial sector vulnerability to solvency and
liquidity risks. |
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