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The Transactions Demand For Money In The Presence Of Currency Substitution: Evidence From Vietnam

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  • Michaël GOUJON

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Sylviane GUILLAUMONT JEANNENEY

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Christopher ADAM

    ()
    (Université Oxford)

Abstract

Currency substitution – the use of foreign money to finance transactions between domestic residents – is widespread in low income and transition economies. Traditionally, however, empirical models of the demand for money tend to concentrate on the portfolio, motive for holding foreign currency, while maintaining the assumption that the income elasticity of demand for domestic money is invariant to the degree of currency substitution.. We offer a simple re-specification of the demand for money which more accurately reflects the process of currency substitution by allowing for a variable income elasticity of demand for domestic money. This specification is estimated for Vietnam in the 1990s. Using a standard cointegration framework we find evidence for currency substitution only in the long-run but well-defined wealth effects operating in the short-run.

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File URL: http://publi.cerdi.org/ed/2003/2003.31.pdf
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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 200331.

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Length: 27
Date of creation: 2003
Date of revision:
Handle: RePEc:cdi:wpaper:457

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Cited by:
  1. Goujon, Michael, 2006. "Fighting inflation in a dollarized economy: The case of Vietnam," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 564-581, September.
  2. Olga Aslanidi, 2008. "Dollarization in Transition Economies: New Evidence from Georgia," CERGE-EI Working Papers wp366, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Amir Kia, 2006. "Economic policies and demand for money: evidence from Canada," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1389-1407.

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