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Crisis resilience in Latin America: dollarization or flexible exchange rates - which offered the best protection during the 2008 global financial crisis?
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This study evaluates the performance of dollarized economies in Latin America during the 2008
Global Financial Crisis, focusing on Ecuador and El Salvador, to assess the effectiveness of
dollarization as a crisis-resilient monetary regime. The analysis uses the Synthetic Control
Method alongside Difference-in-Differences to compare these countries to counterfactual non dollarized scenarios across three key economic indicators. Results show that dollarization did
not outperform the counterfactual, with El Salvador significantly underperforming. The
findings emphasize the limitations of dollarized monetary regimes in providing resilience
during crises in Latin America, particularly for economies lacking structural reforms and
institutional readiness when adopting the dollar.
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Ecuador El Salvador Dollarization Global financial crisis Current account balance Logarithm GDP per capita Inflation