Not the usual suspects: Critical indicators in a dollarized country's Financial Stress Index

Abstract

In this paper we investigate the importance of the dollarization rate in heavily dollarized economies as one of the indicators in a Financial Stress Index. We use data on Lebanon, a middle-income developing country, considered to be one of the highest dollarized countries in the world to construct the first Financial Stress Index for Lebanon. Our findings indicate that the dollarization rate is the most important indicator for the FSI. This should be of relevance to many dollarized countries such as Bolivia, Peru, Uruguay, and others. Remarkably, none of the existing FSIs for dollarized countries has included the dollarization rate. © 2019 Elsevier Inc.