Domestic price dollarization in emerging economies

Andrés Drenik, Diego J. Perez

    Research output: Contribution to journalArticlepeer-review


    This paper studies the dollarization of prices in retail markets of emerging economies. We develop a model of the firm's optimal currency choice in retail markets in inflationary economies. We derive theoretical predictions regarding the optimality of dollar pricing, and test them using data from the largest e-trade platform in Latin America. Across countries, price dollarization is positively correlated with asset dollarization and inflation, and negatively correlated with exchange rate volatility. At the micro level, larger sellers are more likely to price in dollars, and more tradeable goods are more likely to be posted in dollars. We then show that the currency of prices determines the short-run reaction of both prices and quantities to a nominal exchange rate shock.

    Original languageEnglish (US)
    Pages (from-to)38-55
    Number of pages18
    JournalJournal of Monetary Economics
    StatePublished - Sep 2021


    • Currency choice
    • Dollar
    • Exchange rate
    • Pass-through
    • Prices

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics


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