Advanced Search
MyIDEAS: Login

The Dynamics of Currency Substitution, Asset Substitution and De facto Dollarization and Euroization in Transition Countries

Contents:

Author Info

  • Edgar L. Feige

    (University of Wisconsin-Madison)

Abstract

This paper presents new evidence on the dynamics of dollarization and euroization for twenty-five transition countries. Estimates of the amount of foreign currency in circulation (FCC) in transition countries are used to develop a new comprehensive dollarization index (CDI) and separate indices of currency substitution (CSI) and asset substitution (ASI). When the CDI is compared to the traditional dollarization index (DI) that relies solely on foreign currency deposits as a proxy for the extent of dollarization, I find that the comprehensive dollarization measure provides a more complete picture of the extent of de facto dollarization and euroization, and that it better reflects the separate influences of currency substitution and asset substitution. I find that the dynamic evolution of currency substitution and asset substitution in transition countries is both more variable and complex than is usually believed to be the case. These new dollarization indicators enable researchers to examine the causes of the dollarization process and its tendency to lead to irreversibility (hysteresis). Moreover, the currency substitution and asset substitution indices shed light on the dynamic consequences of these processes for the effectiveness of monetary policy. Finally, the new estimates of FCC make possible the measurement of effective currency/deposit ratios that can be used to develop new estimates of the size and growth of underground economies in transition countries. JEL classification: E4 E5 F3 H26 K42 P2 P3 Keywords: dollarization, euroization, transition economies, currency substitution, asset substitution, underground economies, foreign currency, network externalities, irreversibility.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/mac/papers/0302/0302005.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0302005.

as in new window
Length: 35 pages
Date of creation: 27 Feb 2003
Date of revision:
Handle: RePEc:wpa:wuwpma:0302005

Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript; pages: 35
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: dollarization; euroization; transition economies; currency substitution; asset substitution; underground economies; foreign currency; network externalities; irreversibility;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Edgar L. Feige, 2005. "The Underground Economy And The Currency Enigma," Macroeconomics 0502004, EconWPA.
  2. Calvo, Guillermo & Vegh, Carlos, 1992. "Currency Substitution in Developing Countries: An Introduction," MPRA Paper 20338, University Library of Munich, Germany.
  3. Adam Bennett & Eduardo Borensztein & Tomás J. T. Baliño, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers 171, International Monetary Fund.
  4. Feige, Edgar L., 1997. "Revised estimates of the Underground Economy: Implications of US Currency held abroad," MPRA Paper 13805, University Library of Munich, Germany.
  5. Edgar L. Feige & Michael Faulend & Velimir Sonje & Vedran Sosic, 2001. "Currency Substitution, Unoffical Dollarization and Estimates of Foreign Currency Held Abroad: The Case of Croatia," International Finance 0106001, EconWPA.
  6. Helmut Stix, 2001. "Survey Results about Foreign Currency Holdings in Five Central and Eastern European Countries," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 2(3), pages 41-48, 02.
  7. Pablo E. Guidotti & Carlos A. Rodriguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 518-544, September.
  8. Guillermo Calvo & Carlos A. Végh Gramont, 1992. "Currency Substitution in Developing Countries," IMF Working Papers 92/40, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 North American Summer Meetings 456, Econometric Society.
  2. Natalia V. Smirnova, 2004. "Job search behavior of unemployed in Russia," Macroeconomics 0401012, EconWPA.
  3. Valev, Neven T., 2010. "The hysteresis of currency substitution: Currency risk vs. network externalities," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 224-235, March.
  4. Marina Tkalec, 2012. "The Dynamics of Deposit Euroization in European Post-transition Countries: Evidence from Threshold VAR," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(3), pages 278-296, July.
  5. Feige, Edgar L. & Urban, Ivica, 2007. "Measuring Underground (Unobserved, Non-Observed, Unrecorded) Economies in Transition Countries: Can We Trust GDP?," MPRA Paper 7345, University Library of Munich, Germany.
  6. Georgy Idrisov & Lev Freinkman, 2009. "Modeling the Currency Structure of Bank Deposits: Does the Ratchet Effect Matter?," Working Papers 0005, Gaidar Institute for Economic Policy, revised 2009.
  7. Stix, Helmut, 2013. "Why do people save in cash? Distrust, memories of banking crises, weak institutions and dollarization," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4087-4106.
  8. repec:wii:bpaper:bowp:058 is not listed on IDEAS
  9. Bartzsch, Nikolaus & Rösl, Gerhard & Seitz, Franz, 2013. "Currency movements within and outside a currency union: The case of Germany and the euro area," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 393-401.
  10. Tigran Poghosyan & Evzen Kocenda, 2006. "Foreign Exchange Risk Premium Determinants: Case of Armenia," William Davidson Institute Working Papers Series wp811, William Davidson Institute at the University of Michigan.
  11. 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.
  12. Doris Ritzberger-Grünwald & Helmut Stix, 2007. "Are Euro Cash Holdings in Central and Eastern Europe Driven by Experience or Anticipation? Results from an OeNB Survey," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0302005. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.