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The behavior of foreign currency holdings during currency crises: Causes and consequences

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  • Paul Mizen

Abstract

This paper evaluates the current literature on dollarization and finds it to be disappointing in its ability to explain many of the prevailling features of the dollarizations experiences in Latin America, Eastern Europe and the Former Soviet Union. The paper takes a different approach to the standard empirical studies, which usually extend a demand for money function to include international variables, by analyzing foreign currency holding behaviors in response to the sustainability and credibility of the exchange rate regime. The results are very promising and explain some of the previously unexplained phenomena which arise from dollarization. Copyright Kluwer Academic Publishers 1996

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File URL: http://hdl.handle.net/10.1007/BF01886218
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 7 (1996)
Issue (Month): 1 (March)
Pages: 651-673

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Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:651-673

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: currency crisis; dollarization; government credibility; JEL classification; E42; F31; F41;

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References

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  1. 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.
  2. Guillermo Calvo & Carlos A. Végh Gramont, 1992. "Currency Substitution in Developing Countries," IMF Working Papers 92/40, International Monetary Fund.
  3. Calvo, Guillermo & Vegh, Carlos, 1992. "Currency Substitution in Developing Countries: An Introduction," MPRA Paper 20338, University Library of Munich, Germany.
  4. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen & Wickham, Peter, 1991. "The demand for money in developing countries : assessing the role of financial innovation," Policy Research Working Paper Series 721, The World Bank.
  5. Mizen, Paul, 1999. "Can foreign currency deposits prop up a collapsing exchange-rate regime?," Journal of Development Economics, Elsevier, vol. 58(2), pages 553-562, April.
  6. Carlos A. Végh Gramont & Ratna Sahay, 1995. "Dollarization in Transition Economies," IMF Working Papers 95/96, International Monetary Fund.
  7. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
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Cited by:
  1. Mizen, Paul, 1999. "Can foreign currency deposits prop up a collapsing exchange-rate regime?," Journal of Development Economics, Elsevier, vol. 58(2), pages 553-562, April.

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