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The Impact of Memories of High Inflation on Households’ Trust in Currencies

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Abstract

Many Central, Eastern and Southeastern European (CESEE) economies experienced periods of hyperinflation during transition. Given the importance of trust for households’ financial decision making, we analyze how memories of high inflation influence people’s trust in currencies. Individuals who have lived through periods of economic turbulence are more likely to perceive the euro as more trustworthy than the local currency. Individuals who have experienced hyperinflation retain an inclination for a safe haven currency and remain more alert to economic turbulence and prone to distrust currencies in general.

Suggested Citation

  • Elisabeth Beckmann & Thomas Scheiber, 2012. "The Impact of Memories of High Inflation on Households’ Trust in Currencies," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 80-93.
  • Handle: RePEc:onb:oenbfi:y:2012:i:4:b:2
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    File URL: https://www.oenb.at/dam/jcr:63f4eec1-85d7-422f-8210-8e77fedba8ef/feei_2012_q4_studies_beckmann_scheiber_tcm16-251596.pdf
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    1. Edgar Feige & James Dean, 2002. "Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities and Irreversibility," International Finance 0205003, EconWPA.
    2. 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.
    3. Markus Knell & Helmut Stix, 2009. "Trust in Banks? Evidence from normal times and from times of crises," Working Papers 158, Oesterreichische Nationalbank (Austrian Central Bank).
    4. Helmut Stix, 2002. "The Euro in Central and Eastern Europe (CEE countries) : survey evidence from five countries," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(3), pages 33-38, April.
    5. Giuliano, Paola & Spilimbergo, Antonio, 2009. "Growing Up in a Recession: Beliefs and the Macroeconomy," CEPR Discussion Papers 7399, C.E.P.R. Discussion Papers.
    6. Thomas Scheiber & Helmut Stix, 2009. "Euroization in Central, Eastern and Southeastern Europe – New Evidence On Its Extent and Some Evidence On Its Causes," Working Papers 159, Oesterreichische Nationalbank (Austrian Central Bank).
    7. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
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    Cited by:

    1. Elisabeth Beckmann & Mariya Hake & Jarmila Urvová, 2013. "Determinants of Households’ Savings in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 8-29.
    2. Elisabeth Beckmann & Sandra Dvorsky & Thomas Scheiber, 2013. "Trust in the EU in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 77-90.
    3. Thomas Scheiber & Caroline Stern, 2016. "Currency substitution in CESEE: why do households prefer euro payments?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 73-98.
    4. Windischbauer, Ulrich, 2016. "Strengthening the role of local currencies in EU candidate and potential candidate countries," Occasional Paper Series 170, European Central Bank.

    More about this item

    Keywords

    Trust in currencies; euroization; financial crisis; survey data; Central; Eastern and Southeastern Europe;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G01 - Financial Economics - - General - - - Financial Crises

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