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Currency Substitution in Developing Countries: An Introduction

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Author Info

  • Calvo, Guillermo
  • Vegh, Carlos

Abstract

This paper reviews the main policy and analytical issues related to currency substitution in developing countries. The paper discusses, first, whether currency substitution should be encouraged or not; second, how the presence of currency substitution affects the choice of nominal anchors in inflation stabilization programs; third, the effects of changes in the rate of growth of the money supply on the real exchange rate; fourth, the interaction between inflationary finance and currency substitution; and, finally, issues related to the empirical verification of the currency substitution hypothesis.

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File URL: http://mpra.ub.uni-muenchen.de/20338/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20338.

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Date of creation: May 1992
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Handle: RePEc:pra:mprapa:20338

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Related research

Keywords: Currency substitution; dollarization; monetary policy;

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References

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  1. Reinhart, Carmen & Arrau, Patricio & DeGregorio, Jose & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," MPRA Paper 14096, University Library of Munich, Germany.
  2. Guillermo Calvo & Carlos A. Végh Gramont, 1990. "Credibility and the Dynamics of Stabilization Policy," IMF Working Papers 90/110, International Monetary Fund.
  3. Calvo, Guillermo & Vegh, Carlos, 1991. "Exchange rate stabilization under imperfect credibility," MPRA Paper 20486, University Library of Munich, Germany.
  4. Kimbrough, Kent P., 1991. "Optimal taxation and inflation in an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 179-196.
  5. Pablo Emilio Guidotti & Carlos A. Rodriguez, 1991. "Dollarization in Latin America," IMF Working Papers 91/117, International Monetary Fund.
  6. Allan Drazen & Elhanan Helpman, 1991. "Inflationary Consequences of Anticipated Macroeconomic Policies," NBER Working Papers 2006, National Bureau of Economic Research, Inc.
  7. Canzoneri, Matthew B. & Diba, Behzad T., 1992. "The inflation discipline of currency substitution," European Economic Review, Elsevier, vol. 36(4), pages 827-845, May.
  8. Canzoneri, Matthew B & Rogers, Carol Ann, 1990. "Is the European Community an Optimal Currency Area? Optimal Taxation versus the Cost of Multiple Currencies," American Economic Review, American Economic Association, vol. 80(3), pages 419-33, June.
  9. Girton, Lance & Roper, Don E, 1981. "Theory and Implications of Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(1), pages 12-30, February.
  10. Easterly, William & Schmidt-Hebbel, Klaus, 1991. "The macroeconomics of public sector deficits : a synthesis," Policy Research Working Paper Series 775, The World Bank.
  11. Jacob A. Frenkel, 1982. "United States Inflation and the Dollar," NBER Chapters, in: Inflation: Causes and Effects, pages 189-210 National Bureau of Economic Research, Inc.
  12. Barro, Robert J, 1978. "A Stochastic Equilibrium Model of an Open Economy under Flexible Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 149-64, February.
  13. Agenor, Pierre-Richard & Khan, Mohsin S., 1996. "Foreign currency deposits and the demand for money in developing countries," Journal of Development Economics, Elsevier, vol. 50(1), pages 101-118, June.
  14. Bufman, G. & Leiderman, L., 1992. "Currency Substitution under Non-Expected Utility-Some Empirical Evidence," Papers 6-92, Tel Aviv.
  15. Rudiger Dornbusch & Ferico Sturzenegger & Holger Wolf, 1990. "Extreme Inflation: Dynamics and Stabilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 1-84.
  16. Benedict J. Clements & Gerd Schwartz, 1992. "Currency Substitution," IMF Working Papers 92/65, International Monetary Fund.
  17. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  18. Engel, Charles, 1989. "The trade balance and real exchange rate under currency substitution," Journal of International Money and Finance, Elsevier, vol. 8(1), pages 47-58, March.
  19. Calomiris, Charles W & Domowitz, Ian, 1989. "Asset Substitution, Money Demand, and the Inflation Process in Brazil," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 78-89, February.
  20. Rudiger Dornbusch & Alejandro Reynoso, 1989. "Financial Factors in Economic Development," NBER Working Papers 2889, National Bureau of Economic Research, Inc.
  21. Guillermo Calvo & Carlos A. Végh Gramont, 1990. "Money Supply and Interest Rate Policy in a New-Keynesian Framework," IMF Working Papers 90/119, International Monetary Fund.
  22. Calvo, Guillermo A, 1992. "Are High Interest Rates Effective for Stopping High Inflation? Some Skeptical Notes," World Bank Economic Review, World Bank Group, vol. 6(1), pages 55-69, January.
  23. Arrau, Patricio & de Gregorio, Jose, 1991. "Financial innovation and money demand : theory and empirical implementation," Policy Research Working Paper Series 585, The World Bank.
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