Currency Substitution in Egypt and the Yemen Arab Republic: A Comparative Quantitative Analysis

El-Erian, Mohamed A.

doi:10.2307/3867278

Cited by 39 publications

(14 citation statements)

References 13 publications

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“…5 5 El‐Erian (1988), using quarterly data for the period 1980‐86, estimated an elasticity of 0.07. This, along with the estimate of the present paper, may suggest that CS in Egypt became more responsive to change in exchange rate in the 1990s.…”

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confidence: 99%

Exchange Rate Policy and Currency Substitution: The Case of Africa's Emerging Economies

Elkhafif¹

2003

African Development Review

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This paper examines the dynamic of currency substitution (CS) in Egypt and South Africa. The study also assesses the causal relationships of this phenomenon. There are three main CS-related differences between the two countries. These are (1) the orientation of economic policy, (2) the degree and level of CS, and (3) the trend of CS. During the study period 1991-2001, Egypt used the exchange rate as an anchor to its economic programme. While in the case of South Africa, the authorities directly targeted inflation. During this period, CS in Egypt started at a substantial level and experienced a steady decline. Conversely, CS in South Africa started at an insignificant level, but observed an uninterrupted increase. The results suggest that the elasticity of CS, with respect to exchange rate, of South Africa is 2.3 times that of Egypt, and that the speed of adjustment in South Africa is 5 times faster than in Egypt. Granger-causality tests indicate a unidirectional relationship from the exchange rate to CS, in both Egypt and South Africa. The test for the interest rate differential and CS indicate that causality runs from the former to the latter in South Africa, but it runs in the opposite direction in Egypt. The study suggests that despite the cost of the exchange rate anchoring policy, it is more suitable to a high CS environment. Inflation targeting policy can be effective in achieving its objective as long as the CS is insignificant.

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confidence: 99%

Exchange Rate Policy and Currency Substitution: The Case of Africa's Emerging Economies

Elkhafif¹

2003

African Development Review

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“…Therefore higher returns were expected on US$ holdings than on local currency, despite the lower interest rate on foreign currency deposits. An earlier study of currency substitution in Egypt (El-Erian, 1988) showed that residents' demand for foreign currency was sensitive to inflationary pressures and weak external balances. A dummy variable for 'political disruption' after the assassination of president Sadat 2 indicated that political factors also mattered for residents' confidence in the Egyptian pound.…”

Section: Radical Islamism and The Political Economy Of Egyptmentioning

confidence: 99%

How does political violence affect confidence in a local currency? Evidence from Egypt

Fielding

Shortland

2005

J. Int. Dev.

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In this paper we estimate a time-series model of the financial asset portfolio shares in Egypt, distinguishing between assets of varying degrees of liquidity and between domestic currency and foreign currency deposits. While financial liberalization and financial stability are found to have encouraged domestic residents to increase the share of their portfolio composed of domestic currency assets, these effects have been offset by an increase in the number of violent political incidents arising from conflict between radical Islamic groups and the Egyptian state. Greater violence has led to lower domestic asset demand and substitution into foreign currency deposits. The link between political events and financial outcomes provides a rationale for economic policy interventions by Bretton Woods institutions in response to increases in political instability. Copyright © 2005 John Wiley & Sons, Ltd.

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“…If the domestic currency depreciates (appreciates), the opportunity cost of holding domestic balances increases (decreases) relative to foreign balances; therefore, residents will switch to foreign balances (domestic balances). Following El‐Erian () and Rojas‐Suarez (), we choose the actual change in the exchange rate as the proxy for the expected rate of domestic currency depreciation, ln E t , which is defined as ( e t − e t − 1 )/ e t − 1 , where e t and e t − 1 denote the actual exchange rate in year t and t − 1, respectively . The coefficient of the expected depreciation of kip per US dollar, β 2 , is expected to be positive.…”

Section: Empirical Specificationmentioning

confidence: 99%

Currency Substitution in Laos

Xaiyavong¹,

Toyoda

2016

Asian Economic Journal

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This study investigates the determinants of currency substitution in Laos based on the function of money demand. The empirical model is estimated using the autoregressive distributed lag approach to cointegration for the period 1993-2012. Our estimation results indicate that the interest rate differential is a significant currency substitution determinant in the Laos economy. Moreover, there is evidence supporting the existence of a ratchet effect in the currency allocation of deposits, implying that particularly strong policies should be pursued over an extended period of time in order to convince depositors to switch back to kip-denominated assets.

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Currency Substitution in Egypt and the Yemen Arab Republic: A Comparative Quantitative Analysis

Cited by 39 publications

References 13 publications

Exchange Rate Policy and Currency Substitution: The Case of Africa's Emerging Economies

Exchange Rate Policy and Currency Substitution: The Case of Africa's Emerging Economies

How does political violence affect confidence in a local currency? Evidence from Egypt

Currency Substitution in Laos

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