Publication

This paper examines the macroeconomic and distributional effects of exchange rate policy in the highly dollarized economy of Bolivia. Using a simulation model, the authors find that dollarization appears to matter more through real than through financial-sector effects. They argue that only if nominal wages are constant in the short-run, devaluation reduces unemployment and cushions the reduction of real GDP induced by the shock. As concerns distributional effects, nominal devaluation in no circumstance reduces the poverty effect of the external shock.