Currency Substitution in the Czech Republic 1993-2001
AbstractCurrency substitution appears to be an important issue affecting the design of monetary policy, especially in transition economies. Therefore, this paper strives to analyse the particular relevance of the currency substitution phenomenon in the Czech Republicâ€™s case. We initially discuss the various approaches and definitions of currency substitution that found in the literature. Subsequently, discussing the role of currency substitution in small open economies in transition with some illustrations relating to the Czech Republic, we distinguish and analyse a locally and globally substituting currency from a substituted one, as well as and analyse the consequences of euroisation. The empirical part of this paper presents estimations of a modified Branson and Henderson portfolio model for the Czech Republic. This provides a multiperspective approach to currency substitution in the broad sense. Further, we attempt to intensify the robustness of our estimation by applying several cointegration techniques, namely the Johansen procedure, ARDL, DOLS and ADL. Finally, we discuss the potential implications of the currency and asset substitution present according to our estimates in the Czech economy.
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Bibliographic InfoPaper provided by Czech National Bank in its series Archive of Monetary Policy Division Working Papers with number 2001/40.
Date of creation: Dec 2001
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