Currency substitution in a de-dollarizing economy: The case of Russia
AbstractCurrency substitution, the use of foreign money to finance transactions between domestic residents, is a common feature of emerging market economies. Currency substitution re-duces the stability of money demand functions in ways that can seriously undermine cen-tral bank credibility and its efforts to implement monetary policy. Most transition econo-mies, including Russia, experienced widespread currency substitution in the early phase of transition. Following Russia’s financial meltdown in 1998, its monetary authorities intro-duced a raft of changes that substantially improved the stability and performance of the macroeconomy and reduced currency substitution. This paper investigates currency substi-tution in the Russian economy in the post-crisis period of 1999–2005. Several measures of currency substitution and different modelling frameworks consistently suggest an on-going decline in currency substitution, a shift that has important implications for Russian mone-tary policy.
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Bibliographic InfoPaper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 3/2007.
Length: 42 pages
Date of creation: 02 Mar 2007
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currency substitution; transition economies; de-dollarization;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-CBA-2007-03-10 (Central Banking)
- NEP-CIS-2007-03-10 (Confederation of Independent States)
- NEP-FDG-2007-03-10 (Financial Development & Growth)
- NEP-IFN-2007-03-10 (International Finance)
- NEP-MAC-2007-03-10 (Macroeconomics)
- NEP-MON-2007-03-10 (Monetary Economics)
- NEP-TRA-2007-03-10 (Transition Economics)
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