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Currency Substitution and Transactions Costs

Author

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  • Handa, Jagdish
  • Bana, Ismail Mohamed

Abstract

This paper examines currency substitution in Canadian money demand vis-a-vis the U.S. dollar. A variant of the model developed by Bordo and Choudhri (1982) is estimated to test for the presence and extent of this substitution. The modified model is enhanced by the introduction of foreign exchange transactions costs. The resulting increased explanatory power indicates that previous tests which have omitted such costs understate the extent of currency substitution.

Suggested Citation

  • Handa, Jagdish & Bana, Ismail Mohamed, 1990. "Currency Substitution and Transactions Costs," Empirical Economics, Springer, vol. 15(3), pages 231-243.
    • Handle: RePEc:spr:empeco:v:15:y:1990:i:3:p:231-43
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    Cited by:

    1. Alami, Tarik H., 2001. "Currency substitution versus dollarization: A portfolio balance model," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 473-479, May.
    2. Lubos Komarek & Martin Melecky, 2001. "Currency Substitution in the Czech Republic 1993-2001," Archive of Monetary Policy Division Working Papers 2001/40, Czech National Bank.
    3. Michael J. Pisani & Thomas M. Fullerton, Jr., 2013. "Microenterprise Peso Acceptance in El Paso, Texas," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 75-94, November.
    4. Alberto Giovannini & Bart Turtelboom, 1992. "Currency Substitution," NBER Working Papers 4232, National Bureau of Economic Research, Inc.
    5. Komarek, Lubos & Melecky, Martin, 2001. "Demand for Money in the Transition Economy: The Case of the Czech Republic 1993–2001," Economic Research Papers 269384, University of Warwick - Department of Economics.
    6. Komárek Luboš & Melecký Martin, 2001. "Currency Substitution in the Transition Economy : A Case of the Czech Republic 1993-2001," The Warwick Economics Research Paper Series (TWERPS) 613, University of Warwick, Department of Economics.
    7. Fridman Alla & Verbetsky Aleksey, 2001. "Currency Substitution in Russia," EERC Working Paper Series 01-05e, EERC Research Network, Russia and CIS.

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