A comparative analysis of dollarization in Tanzania and Argentina
Date
2014-01-14
Authors
Agwambo, Neema John
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Abstract
This study examined the portfolio theory of dollarization of Ize and Yeyati (2003) to
see if it holds in Argentina and Tanzania, this study was conducted to see if the
variables of the exchange rate volatility and inflation rate fluctuation contribute to
dollarization. Moreover, it shows that there is a relationship between the level of
dollarization on nominal interest rate, inflation rate and exchange rate as the portfolio
theory predict. The Chow test (Chow (1960) was used to test for the equality of
coefficients in Argentina and Tanzania as separate samples. The results indicated that
the correlation analysis and regression analysis in both countries there is
disagreement over the assumptions and showed that exchange rate, inflation rate and
interest rates do not have a significant effect on the level of dollarization. This means
that the theory of portfolio do not hold for the case of Tanzania and Argentina and it
is suggested that because the nature of the relationship is not linear, a new research
design can be developed or it simply means that the portfolio theory is incorrect. We
recommend that further research be pursued using the same variables as in this study
but using different forms, such as using real as opposed to using nominal values,
using non-linear forms instead of using a linear estimation method. Or the search for
the significant explanatory variable of dollarization and the variables could only be
included in a process that calls for the formulation of new theory to replace the
current theory. The new variables to be included are government quality, monetary
policy agility, individual heterogeneity, domestic debt, default risk, institutional
quality and financial integration.
Description
Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2013.
Keywords
Dollarization, Tanzania, Argentina, Inflation