Source: International Monetary Fund
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Summary
This paper analyzes Timor-Leste’s historical economic performance and structure under dollarization. It considers several dimensions that determine the benefits and costs of the regime: (i) growth and inflation performance; (ii) business and financial cycle synchronization; (iii) adjustment to external shocks; and (iv) competitiveness. Dollarization has helped Timor-Leste achieve relatively low and stable inflation in the context of post conflict fragility, but may be contributing to weakening competitiveness. Improved performance under dollarization requires reduced fiscal imbalances and advancement of reforms that address structural bottlenecks that also undermine competitiveness.
Subject: Business cycles, Competition, Conventional peg, Currencies, Dollarization, Economic growth, Exchange rate arrangements, Exchange rate flexibility, Expenditure, Financial markets, Foreign exchange, Inflation, Monetary policy, Money, Prices, Real effective exchange rates
Keywords: Business cycles, Business cycles, Commodity price fluctuations, Competition, Competitiveness, Conventional peg, Currencies, Dollarization, Dollarization, Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Inflation, Real effective exchange rates