Currency Substitution and Money Demand in Euroland

Freitas, Miguel Lebre de

doi:10.1007/s11293-006-9016-z

Cited by 4 publications

(1 citation statement)

References 31 publications

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“…The Thomas model will be seen as the centrepiece to test the CS hypothesis in countries with developed financial markets. Not surprisingly, this model has been used to test the presence of currency substitution among major currencies (Bergstrand and Bundt 1990; Mizen and Pentecost 1994; Lebre de Freitas 2006). Sahay and Végh (1996) used the same model to discuss the case of high‐inflation countries where bank deposits denominated in foreign currency are available, playing the role of the missing bond.…”

Section: Implications For Empirical Workmentioning

confidence: 99%

Currency substitution, portfolio diversification, and money demand

Freitas

Veiga

2006

Canadian J of Economics

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We extend the Thomas (1985) dynamic optimizing model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case currency substitution decisions and asset substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six LatinAmerican countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile. JEL classification: E41, F41, G11Substitution de devises, diversification de portefeuilles, et demande de monnaie. Les auteurs prolongent le modèle d'optimisation dynamique de demande de monnaie et de substitution de devises de Thomas (1985) au cas où l'individu a un accès restreint ou nul aux débentures en devisesétrangères. Dans ce cas, les décisions de substitution de devises et de substitution d'actifs ne sont pas séparables. Les résultats obtenus suggèrent que la nature significative d'une variable enregistrant une dépréciation anticipée du taux de change dans l'équation de la demande de monnaie nationale fournit un test valide de la présence de substitution de devises. En appliquant cette approcheà six pays d'Amérique latine, on découvre qu'il y aévidence de substitution de devises en Colombie, en République dominicaine, et au Vénézuéla, mais pas au Brésil et au Chili.

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Section: Implications For Empirical Workmentioning

confidence: 99%

Currency substitution, portfolio diversification, and money demand

Freitas

Veiga

2006

Canadian J of Economics

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International currency substitution and the demand for money in the euro area

Freitas

2022

Economic Modelling

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Currency Substitution in a De-Dollarizing Economy: The Case of Russia

Harrison¹,

Vymyatina

2007

SSRN Journal

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Currency substitution, the use of foreign money to finance transactions between domestic residents, is a common feature of emerging market economies. Currency substitution reduces the stability of money demand functions in ways that can seriously undermine central bank credibility and its efforts to implement monetary policy. Most transition economies, including Russia, experienced widespread currency substitution in the early phase of transition. Following Russia's financial meltdown in 1998, its monetary authorities introduced a raft of changes that substantially improved the stability and performance of the macroeconomy and reduced currency substitution. This paper investigates currency substitution in the Russian economy in the post-crisis period of 1999-2005. Several measures of currency substitution and different modelling frameworks consistently suggest an on-going decline in currency substitution, a shift that has important implications for Russian monetary policy.

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Currency Substitution and Money Demand in Euroland

Cited by 4 publications

References 31 publications

Currency substitution, portfolio diversification, and money demand

Currency substitution, portfolio diversification, and money demand

International currency substitution and the demand for money in the euro area

Currency Substitution in a De-Dollarizing Economy: The Case of Russia

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