The dynamics of currency substitution, asset substitution and de facto dollarization and euroization in transition countries
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. Forthcoming Comparative Economic Studies, Fall, 2003
(This abstract was borrowed from another version of this item.)
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.|
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.:
- Feige, Edgar L., 1997. "Revised estimates of the Underground Economy: Implications of US Currency held abroad," MPRA Paper 13805, University Library of Munich, Germany.
- Edgar L. Feige, 2005.
"The Underground Economy And The Currency Enigma,"
- 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.
- Pablo Emilio Guidotti & Carlos A. Rodriguez, 1991. "Dollarization in Latin America; Gresham's Law in Reverse?," IMF Working Papers 91/117, International Monetary Fund.
- Pablo Guidotti & Carlos A. Rodríguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," CEMA Working Papers: Serie Documentos de Trabajo. 81, Universidad del CEMA.
- 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.
- Helmut Stix, 2001. "Survey Results about Foreign Currency Holdings in Five Central and Eastern European Countries," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(3), pages 41-48, 02.
- Calvo, Guillermo & Vegh, Carlos, 1992.
"Currency Substitution in Developing Countries: An Introduction,"
20338, University Library of Munich, Germany.
- Guillermo Calvo & Carlos A. VÃ©gh Gramont, 1992. "Currency Substitution in Developing Countries; An Introduction," IMF Working Papers 92/40, International Monetary Fund.
- Adam Bennett & Eduardo Borensztein & TomÃ¡s J. T. BaliÃ±o, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers 171, International Monetary Fund.
- Seitz, Franz, 1995. "The circulation of Deutsche Mark abroad," Discussion Paper Series 1: Economic Studies 1995,01e, Deutsche Bundesbank, Research Centre.
When requesting a correction, please mention this item's handle: RePEc:att:wimass:20033. 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: (Ailsenne Sumwalt)
If references are entirely missing, you can add them using this form.