The reduction of macroeconomic vulnerability in emerging markets is at the core of the research agenda. In this context, liability dollarization plays a vital role and its implications have been addressed in the literature via a “financial accelerator” mechanism. After allowing for different...

Financial dollarization creates design problems for economic policy as increases the level of financial vulnerability. However, countries with high levels of dollarization have done almost nothing to reduce it. In this paper we study two ways to do it and we evaluate them within a model that...