Analysis of Bank's and Companies' Behaviour in Dollarized Economies

Studies on financial dollarization show that a high degree of economy dollarization still exists in some countries which make their economies interesting to investigate. The present research is devoted to giving a better understanding of how monetary policy adjustments induced by the FED and ECB affect profitability of companies and banks in dollarized economies. Data include entities located in countries from Latin America and Southeast Europe during period from 1994 to 2016. Using pooled and fixed effects models we determine that on average in short term bank’s profitability reduces due to increase of external interest rate if the bank is from highly or fully dollarized economy. On the other hand, banks from low dollarized economies experience rise of profits if external interest rate rises. The result can be caused by the fact that fully and highly dollarized economies perceive interest shock as given, while low dollarized economies do not have such an exposure to it and, hence, are influenced in a lesser extent and manage to adjust to new market conditions without loss of profit. Unfortunately, findings for companies are inconclusive in respect to the stated topic due to insignificant coefficients. Key words: financial dollarization, interest rate, The Fed, ECB, monetary policy