Procyclical fiscal policy may drive countries towards dollarizing sovereign debt.
The article explores how government policies affect the choice of using dollars in their debt. By studying data from 22 emerging market countries, the researchers found that when a country's currency value goes down during economic downturns, having fiscal policies that follow the economic cycle can lead to more dollar-based debt. This means that in times of economic growth, governments may borrow more in dollars, which can have implications for their financial stability.