Incertidumbre y dolarización: El caso ecuatoriano 1990-2011

Abstract

What are the trade-offs of losing the capacity of implementing a conventional monetary policy within an emergent economy? In this paper, to answer this question we focus on the impact of dollarization on institutional or macroeconomic uncertainty and economic growth in Ecuador. Our empirical strategy is embedded within a new institutional economics framework. This shed light on the relevance of certainty in macroeconomic environments in order for economic agents to improve production. The novelty in this empirical approach is the design of an Index of Institutional Uncertainty based upon the method of Principal Component Analysis. In turn, this index is used with a VAR model developed for the Ecuadorian economy to study how uncertainty affects economic growth. The impulse response functions for periods before and after dollarization, in 2000, yield results that this policy helped to reduce uncertainty and via this mechanism promoted economic growth.