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Dollarization in Transition Economies: New Evidence from Georgia

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  • Olga Aslanidi
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    Abstract

    This paper provides new evidence for dollarization in Georgia during the period from 1996 to 2007 using implications of dynamic money-in-utility-function models. Partial effects of foreign and domestic inflation, exchange rate, and foreign and domestic currency deposits’ interest rates on dollarization are considered. The US dollar is a strong substitute for domestic currency and has a significant share in producing domestic liquidity services. The actual dollarization in Georgia is persistent and larger than partial effects models predict.

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    Bibliographic Info

    Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp366.

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    Date of creation: Sep 2008
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    Handle: RePEc:cer:papers:wp366

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    Keywords: Dollarization; Georgia; Money-in-utility-function;

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    1. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
    2. 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.
    3. Christopher Adam & Michael Goujon & Sylviane Guillaumont Jeanneney, 2004. "The transactions demand for money in the presence of currency substitution: evidence from Vietnam," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1461-1470.
    4. Thomas, Lee R, 1985. "Portfolio Theory and Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 347-57, August.
    5. 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.).
    6. Fridman Alla & Verbetsky Aleksey, 2001. "Currency Substitution in Russia," EERC Working Paper Series 01-05e, EERC Research Network, Russia and CIS.
    7. Selcuk, Faruk, 2003. "Currency substitution: new evidence from emerging economies," Economics Letters, Elsevier, vol. 78(2), pages 219-224, February.
    8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    9. 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.
    10. Faruk Seļuk, 1997. "GMM estimation of currency substitution in a high-inflation economy: evidence from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 4(4), pages 225-227.
    11. Joannes Mongardini & Johannes Mueller, 1999. "Rachet Effects in Currency Substitution," IMF Working Papers 99/102, International Monetary Fund.
    12. Oleh Havrylyshyn & Christian H Beddies, 2003. "Dollarisation in the Former Soviet Union: from Hysteria to Hysteresis," Comparative Economic Studies, Palgrave Macmillan, vol. 45(3), pages 329-357, September.
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