Currency substitution, portfolio diversification, and money demand
Abstractdynamic 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 Latin-American countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 39 (2006)
Issue (Month): 3 (August)
Contact details of provider:
Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
Web page: http://economics.ca/cje/
More information through EDIRC
Other versions of this item:
- Miguel Lebre de Freitas, 2004. "Currency Substitution, Portfolio Diversification and Money Demand," Econometric Society 2004 Latin American Meetings 263, Econometric Society.
- Miguel Lebre de Freitas, 2004. "Currency Substitution, portfolio Diversification and Money Demand," NIPE Working Papers 9/2004, NIPE - Universidade do Minho.
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shouyong Shi, 1995.
"Money and Prices: A Model of Search and Bargaining,"
916, Queen's University, Department of Economics.
- Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
- Miles, Marc A, 1978. "Currency Substitution, Flexible Exchange Rates, and Monetary Independence," American Economic Review, American Economic Association, vol. 68(3), pages 428-36, June.
- Branson, William H. & Henderson, Dale W., 1985.
"The specification and influence of asset markets,"
Handbook of International Economics,
in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 15, pages 749-805
- Akcay, O. Cevdet & Alper, C. Emre & Karasulu, Meral, 1997. "Currency substitution and exchange rate instability: The Turkish case," European Economic Review, Elsevier, vol. 41(3-5), pages 827-835, April.
- Agenor, Pierre-Richard & Khan, Mohsin S., 1996.
"Foreign currency deposits and the demand for money in developing countries,"
Journal of Development Economics,
Elsevier, vol. 50(1), pages 101-118, June.
- Mohsin S. Khan & Pierre-Richard AgÃ©nor, 1992. "Foreign Currency Deposits and the Demand for Money in Developing Countries," IMF Working Papers 92/1, International Monetary Fund.
- Paul R. Krugman, 1984. "The International Role of the Dollar: Theory and Prospect," NBER Chapters, in: Exchange Rate Theory and Practice, pages 261-278 National Bureau of Economic Research, Inc.
- Pablo Guidotti & Carlos A. Rodríguez, 1992.
"Dollarization in Latin America: Gresham's Law in Reverse?,"
CEMA Working Papers: Serie Documentos de Trabajo.
81, Universidad del CEMA.
- Pablo E. Guidotti & Carlos A. Rodriguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 518-544, September.
- Pablo Emilio Guidotti & Carlos A. Rodriguez, 1991. "Dollarization in Latin America - Gresham's Law in Reverse?," IMF Working Papers 91/117, International Monetary Fund.
- Vegh, Carlos A., 1989. "The optimal inflation tax in the presence of currency substitution," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 139-146, July.
- Uribe, Martin, 1997.
"Hysteresis in a simple model of currency substitution,"
Journal of Monetary Economics,
Elsevier, vol. 40(1), pages 185-202, September.
- Martin Uribe, 1995. "Hysteresis in a simple model of currency substitution," International Finance Discussion Papers 509, Board of Governors of the Federal Reserve System (U.S.).
- Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416.
- Miguel Lebre de Freitas, 2003.
"The dynamics of inflation and currency substitution in a small open economy,"
Working Papers de Economia (Economics Working Papers)
02, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro, revised Aug 2003.
- Lebre de Freitas, M., 2004. "The dynamics of inflation and currency substitution in a small open economy," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 133-142, February.
- Miguel Lebre de Freitas, 2004. "The Dynamics of Inflation and Currency Substitution in a Small Open Economy," NIPE Working Papers 1/2004, NIPE - Universidade do Minho.
- Ratti, Ronald A & Jeong, Byung Woo, 1994. "Variation in the real exchange rate as a source of currency substitution," Journal of International Money and Finance, Elsevier, vol. 13(5), pages 537-550, October.
- Chang, Roberto, 1989.
"Endogenous Currency Substitution, Inflationary Finance, And Welfare,"
89-12, C.V. Starr Center for Applied Economics, New York University.
- Chang, Roberto, 1994. "Endogenous Currency Substitution, Inflationary Finance, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 903-16, November.
- Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.
- Stockman, Alan C, 1980.
"A Theory of Exchange Rate Determination,"
Journal of Political Economy,
University of Chicago Press, vol. 88(4), pages 673-98, August.
- Eduardo Levy Yeyati, 2005.
"Financial Dollarisation: Evaluating The Consequences,"
Business School Working Papers
findollarisation, Universidad Torcuato Di Tella.
- Eduardo Levy Yeyati, 2006. "Financial dollarization: evaluating the consequences," Economic Policy, CEPR & CES & MSH, vol. 21(45), pages 61-118, 01.
- Eduardo Levy-Yeyati, 2004. "FINANCIAL DOLLARIZATION: Evaluating the consequences," Econometric Society 2004 Latin American Meetings 184, Econometric Society.
- Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
- Imrohoroglu, Selahattin, 1994. "GMM Estimates of Currency Substitution between the Canadian Dollar and the U.S. Dollar," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 792-807, November.
- Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer, vol. 4(3), pages 381-99.
- Engineer, Merwan, 2000. "Currency transactions costs and competing fiat currencies," Journal of International Economics, Elsevier, vol. 52(1), pages 113-136, October.
- Mizen, Paul & Pentecost, Eric J, 1994. "Evaluating the Empirical Evidence for Currency Substitution: A Case Study of the Demand for Sterling in Europe," Economic Journal, Royal Economic Society, vol. 104(426), pages 1057-69, September.
- Thomas, Lee R, 1985. "Portfolio Theory and Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 347-57, August.
- Bergstrand, Jeffrey H. & Bundt, Thomas P., 1990. "Currency substitution and monetary autonomy: the foreign demand for US demand deposits," Journal of International Money and Finance, Elsevier, vol. 9(3), pages 325-334, September.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Smith, Constance E, 1995. "Substitution, Income, and Intertemporal Effects in Currency-Substitution Models," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 53-59, February.
- Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-25, June.
- repec:ebl:ecbull:v:30:y:2010:i:1:p:624-635 is not listed on IDEAS
- Miguel Lebre de Freitas, 2003.
"Currency substitution and money demand in Euroland,"
NIPE Working Papers
11/2003, NIPE - Universidade do Minho.
- Miguel Lebre de Freitas, 2006. "Currency Substitution and Money Demand in Euroland," Atlantic Economic Journal, International Atlantic Economic Society, vol. 34(3), pages 275-287, September.
- Ivan Milenković & Milivoje Davidović, 2013. "Determinants of Currency Substitution/Dollarization – The Case of the Republic of Serbia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(1), pages 139-155.
- repec:cbk:journl:v:1:y:2013:i:3:p:139-155 is not listed on IDEAS
- Caroline Duburcq, 2010. "The Impact of Exchange Rate Regime on Interest Rates in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 47(135), pages 91-124.
- Ingrid Groessl & Ulrich Fritsche, 2006.
"The Store-of-Value-Function of Money as a Component of Household Risk Management,"
Macroeconomics and Finance Series
200606, Hamburg University, Department Wirtschaft und Politik.
- Ingrid Größl & Ulrich Fritsche, 2007. "The Store-of-Value-Function of Money as a Component of Household Risk Management," Discussion Papers of DIW Berlin 660, DIW Berlin, German Institute for Economic Research.
- Caroline Duburcq & Eric Girardin, 2010. "Domestic and external factors in interest rate determination: the minor role of the exchange rate regime," Economics Bulletin, AccessEcon, vol. 30(1), pages 624-635.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Werner Antweiler).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.