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Currency Substitution in Eastern Europe

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Author Info
Aarle, B. van
Budina, N. (Tilburg University, Center for Economic Research)

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Abstract

Monetary instability during the transition process from a command economy to a market economy has induced a considerable increase in currency substitution in Eastern Europe. Currency substitution itself affects monetary stability since it reduces the stability of velocity. This paper investigates currency substitution in Eastern Europe. The consequences for the conduct of monetary policies are stressed as currency substitution of a significant degree has a large impact on monetary equilibrium and public finance. Currency substitution affects the shape of the seignorage Laffer-curve, since it makes its tax base, real money demand, sensitive to exchange rate expectations. With the use of the available data the sensitivity of money demand to currency substitution in the Eastern European countries is assessed.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2.

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Date of creation: 1995
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Handle: RePEc:dgr:kubcen:19952

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Related research
Keywords: Currency Substitution;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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  1. Bordo, Michael D & Choudhri, Ehsan U, 1982. "Currency Substitution and the Demand for Money: Some Evidence for Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 48-57, February. [Downloadable!] (restricted)
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  2. Chawluk, Antoni & Cross, Rod, 1994. "Zloty and Dollar Balances in Poland 1965-1993," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 62(0), pages 41-66, Suppl..
  3. Boyer, Russell S. & Kingston, Geoffrey H., 1987. "Currency substitution under finance constraints," Journal of International Money and Finance, Elsevier, vol. 6(3), pages 235-250, September. [Downloadable!] (restricted)
  4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  5. Lane, Timothy D., 1992. "Inflation stabilization and economic transformation in Poland: The first year," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 36(1), pages 105-155, July. [Downloadable!] (restricted)
  6. Peter Wickham & Carmen Reinhart & Jose De Gregorio & Patricio Arrau, 1991. "The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation," IMF Working Papers 91/45, International Monetary Fund.
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  7. Eduardo Borensztein & Manmohan S. Kumar & Paul R. Masson & Guillermo Calvo, 1993. "Financial Sector Reforms and Exchange Arrangements in Eastern Europe," IMF Occasional Papers 102, International Monetary Fund.
  8. Solimano, Andres, 1993. "The postsocialist transitions in comparative perspective: Policy issues and recent experience," World Development, Elsevier, vol. 21(11), pages 1823-1835, November. [Downloadable!] (restricted)
  9. Pablo Emilio Guidotti & Carlos A. Rodriguez, 1991. "Dollarization in Latin America - Gresham's Law in Reverse?," IMF Working Papers 91/117, International Monetary Fund.
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  10. Calvo, Guillermo A., 1985. "Currency substitution and the real exchange rate: the utility maximization approach," Journal of International Money and Finance, Elsevier, vol. 4(2), pages 175-188, June. [Downloadable!] (restricted)
  11. Clements, Benedict & Schwartz, Gerd, 1993. "Currency substitution: The recent experience of Bolivia," World Development, Elsevier, vol. 21(11), pages 1883-1893, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gérard Duchêne & Ramona Jimborean & Boris Najman, 2006. "Structure of Monetary Assets in Transition Economies: Financial Innovation and Structural Transformation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00270544_v1, HAL. [Downloadable!]
  2. W.H. Buiter, 1997. "Aspects of Fiscal Performance in Some Transition Economies Under Fund-Supported Programs," CEP Discussion Papers dp0333, Centre for Economic Performance, LSE. [Downloadable!]
  3. Vetlov, Igor, 2001. "Dollarization in Lithuania: An Econometric Approach," BOFIT Discussion Papers 1/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  4. Henrik Müller, 1999. "From dollarisation to euroisation," Intereconomics: Review of European Economic Policy, Springer, vol. 34(6), pages 286-296, November. [Downloadable!] (restricted)
  5. Piontkovsky Ruslan, 2003. "Dollarization, Inflation Volatility and Underdeveloped Financial Markets in Transition Economies," EERC Working Paper Series 03-02e, EERC Research Network, Russia and CIS. [Downloadable!]
  6. Harrison , Barry & Vymyatnina, Yulia, 2007. "Currency substitution in a de-dollarizing economy: The case of Russia," BOFIT Discussion Papers 3/2007, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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