Dear Tom Doan and Forum members,
I am currently working on a research project that analyzes monetary policy transmission in a dollarized economy. I would greatly appreciate your advice on how best to model dollarization within a SVAR or local projections framework using RATS. In particular, I am interested in understanding how dollarization can be incorporated into the identification strategy and estimate its effect on monetary policy transmission.
Best regards,
Elyor
How to incorporate dollarization into SVAR model
Re: How to incorporate dollarization into SVAR model
I'm not sure I understand what you are trying to do. Are you studying an economy which transitioned to dollarization, or an economy which has been dollarized throughout the data range? A VAR, or at least a VAR applied to that economy, can't really help much with the first.
Re: How to incorporate dollarization into SVAR model
Dear Tom,
Thank you for the reply.
The country has been characterized with high rate of dollarization (deposit or loan dollarization) but the country has its own currency and uses local currency for transactions and settlements. My sample uses deposit and loan dollarization rate as a proxy for dollarization of the economy. Also, it is an economy that has been dollarized for the entire sample ( 2004q1-2025q4); however, the deposit and loan dollarization have declined over the last 10 years of the sample. I want to estimate how such a decline of dollarization (or general dollarization rate) had real effects on monetary policy transmission process. FYI, a post-Soviet economy with crawling peg regime and introduced inflation targeting in 2020. If VAR can not help, please advice me which model or models can I specify to examine my objective.
Best regards,
Elyor
Thank you for the reply.
The country has been characterized with high rate of dollarization (deposit or loan dollarization) but the country has its own currency and uses local currency for transactions and settlements. My sample uses deposit and loan dollarization rate as a proxy for dollarization of the economy. Also, it is an economy that has been dollarized for the entire sample ( 2004q1-2025q4); however, the deposit and loan dollarization have declined over the last 10 years of the sample. I want to estimate how such a decline of dollarization (or general dollarization rate) had real effects on monetary policy transmission process. FYI, a post-Soviet economy with crawling peg regime and introduced inflation targeting in 2020. If VAR can not help, please advice me which model or models can I specify to examine my objective.
Best regards,
Elyor