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Evaluating the Empirical Evidence for Currency Substitution: A Case Study of the Demand for Sterling in Europe

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  • Mizen, Paul
  • Pentecost, Eric J

Abstract

Currency substitution has important implications for the cost of European monetary union--if it is significant it will help to reduce costs of convergence to a single currency. This paper informs the policy debate by testing for its existence on a consistent European database making use of cointegration methods. The results demonstrate that, in the two types of models tested, there is no clear evidence of currency substitution in either the short or the long run and that, therefore, currency substitution between sterling and EC currencies cannot be relied upon as a mechanism or an aid to reduce the costs of monetary convergence. Copyright 1994 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 104 (1994)
Issue (Month): 426 (September)
Pages: 1057-69

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Handle: RePEc:ecj:econjl:v:104:y:1994:i:426:p:1057-69

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Cited by:
  1. Arnold, Ivo J. M. & de Vries, Casper G., 2000. "Endogeneity in European money demand," European Journal of Political Economy, Elsevier, vol. 16(4), pages 587-609, November.
  2. Renato Filosa, 1995. "Money demand stability and currency substitution in six European countries (1980-1992)," BIS Working Papers 30, Bank for International Settlements.
  3. Miguel Lebre de Freitas & Francisco José Veiga, 2006. "Currency substitution, portfolio diversification, and money demand," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 719-743, August.
  4. Mark Holmes, 2000. "The Velocity of Circulation: Some new evidence on international integration," International Review of Applied Economics, Taylor and Francis Journals, vol. 14(4), pages 449-459.
  5. Kari Heimonen, 2006. "The Dynamics of Currency Substitution: Evidence from UK Foreign Currency Balances," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 5(1), pages 61-74, April.
  6. Sharma, Subhash C. & Kandil, Magda & Chaisrisawatsuk, Santi, 2005. "Currency substitution in Asian countries," Journal of Asian Economics, Elsevier, vol. 16(3), pages 489-532, June.
  7. Harrison , Barry & Vymyatnina, Yulia, 2007. "Currency substitution in a de-dollarizing economy: The case of Russia," BOFIT Discussion Papers 3/2007, Bank of Finland, Institute for Economies in Transition.
  8. Miguel Lebre de Freitas, 2006. "Eu-Wide Money And Currency Substitution," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 48-63, November.
  9. Miguel Lebre de Freitas, 2003. "Currency substitution and money demand in Euroland," NIPE Working Papers 11/2003, NIPE - Universidade do Minho.
  10. Yinusa, D. Olalekan & Akinlo, A.E., 2008. "Exchange Rate Volatility and the extent of Currency Substitution in Nigeria," MPRA Paper 16257, University Library of Munich, Germany.
  11. Chris Milner & Paul Mizen & Eric Pentecost, 1996. "The impact of infra-European trade on sterling currency substitution," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 132(1), pages 160-171, March.
  12. Joseph Daniels & David Hoose, 1996. "Reserve requirements, currency substitution, and seigniorage in the transition to European monetary union," Open Economies Review, Springer, vol. 7(3), pages 257-273, July.

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