In recent years, recommendations for countries to unilaterally dollarize/eurorize have become common, particularly when the countries lack economic credibility. After exploring the characteristics of dollarizing/eurorizing economies, we look at the merits and costs of unilateral eurorization for...

We use the Markov-switching model based on Hamilton (1990) among others. The non-explicit intervention of the Central Reserve Bank changes the expectations of economic agents. This change in expectations clearly shows that the public is aware of non-explicit interventions in a dollarized economy...

This 2009 Article IV Consultation highlights that the Former Yugoslav Republic of Macedonia’s vulnerability at the outset of the global crisis was its large current account deficit in the context of the exchange rate peg to the euro. At the same time, it benefited from a small fiscal...

This paper provides a summary of the key policies that encourage dedollarization. It focuses on cases in which the authorities’ intention is to gain greater control of monetary policy and draws on the experiences of countries that have successfully dedollarized. Unlike previous work on...

We study the role of the exchange rate regime, reserve accumulation, and sterilization policies in the macroeconomics of aid surges. Absent sterilization, a peg allows for almost full aid absorption — an increase in the current account deficit net of aid—delivering the same effects...

Upon entry into the European Union, countries become members of the Economic and Monetary Union (EMU), with a derogation from adopting the euro as their currency (that is, each country joining the EU commits to replace its national currency with the euro, but can choose when to request...