Financial Dollarization and International Reserve Holdings: Cross-Country Evidence from Emerging and Developing Economies
Does deposit dollarization condition the relationship between international reserves and their conventional determinants? Using a panel of about 130 countries over 2000–2022, the paper re-estimates benchmark reserve-demand models, compares low-, intermediate- and high-dollarization groups with Random Forest models, and complements this with fixed-effects regressions. In more dollarized economies, financial depth, banking-sector liquidity and short-term external liabilities become more relevant, while trade-related variables lose weight — a pattern consistent with a precautionary financial-stability motive.
International reservesFinancial dollarizationRandom ForestPanel data
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