IDEAS home Printed from
   My bibliography  Save this paper

Currency Substitution in the Czech Republic 1993-2001


  • Lubos Komarek
  • Martin Melecky


Currency substitution appears to be an important issue affecting the design of monetary policy, especially in transition economies. Therefore, this paper strives to analyse the particular relevance of the currency substitution phenomenon in the Czech Republic’s case. We initially discuss the various approaches and definitions of currency substitution that found in the literature. Subsequently, discussing the role of currency substitution in small open economies in transition with some illustrations relating to the Czech Republic, we distinguish and analyse a locally and globally substituting currency from a substituted one, as well as and analyse the consequences of euroisation. The empirical part of this paper presents estimations of a modified Branson and Henderson portfolio model for the Czech Republic. This provides a multiperspective approach to currency substitution in the broad sense. Further, we attempt to intensify the robustness of our estimation by applying several cointegration techniques, namely the Johansen procedure, ARDL, DOLS and ADL. Finally, we discuss the potential implications of the currency and asset substitution present according to our estimates in the Czech economy.

Suggested Citation

  • Lubos Komarek & Martin Melecky, 2001. "Currency Substitution in the Czech Republic 1993-2001," Archive of Monetary Policy Division Working Papers 2001/40, Czech National Bank.
  • Handle: RePEc:cnb:mpaper:2001/40

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Alberto Giovannini & Bart Turtelboom, 1992. "Currency Substitution," NBER Working Papers 4232, National Bureau of Economic Research, Inc.
    4. Grilli, Vittorio & Roubini, Nouriel, 1996. "Liquidity models in open economies: Theory and empirical evidence," European Economic Review, Elsevier, vol. 40(3-5), pages 847-859, April.
    5. Brian M. Doyle, 2000. ""Here, dollars, dollars ..."estimating currency demand and worldwide currency substitution," International Finance Discussion Papers 657, Board of Governors of the Federal Reserve System (U.S.).
    6. Canzoneri, Matthew B. & Diba, Behzad T., 1992. "The inflation discipline of currency substitution," European Economic Review, Elsevier, vol. 36(4), pages 827-845, May.
    7. Joannes Mongardini & Johannes Mueller, 2000. "Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1-3.
    8. Handa, Jagdish & Bana, Ismail Mohamed, 1990. "Currency Substitution and Transactions Costs," Empirical Economics, Springer, vol. 15(3), pages 231-243.
    9. repec:crs:wpaper:9645 is not listed on IDEAS
    10. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
    11. Liliana Rojas-Suárez, 1992. "Currency Substitution and Inflation in Peru," IMF Working Papers 92/33, International Monetary Fund.
    12. Bufman, G. & Leiderman, L., 1992. "Simulating an Optimizing Model of Currency Substitution," Papers 6-92, Tel Aviv - the Sackler Institute of Economic Studies.
    13. Casey B. Mulligan & Xavier Sala-i-Martin, 1995. "Adoption of financial technologies: Implications for money demand and monetary policy," Economics Working Papers 134, Department of Economics and Business, Universitat Pompeu Fabra.
    14. Rogers, John H, 1990. "Foreign Inflation Transmission under Flexible Exchange Rates and Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 195-208, May.
    15. Thomas, Lee R, 1985. "Portfolio Theory and Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 347-357, August.
    16. 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.
    17. Frederic S. Mishkin, 2001. "Financial Policies and the Prevention of Financial Crises in Emerging Market Countries," NBER Working Papers 8087, National Bureau of Economic Research, Inc.
    18. Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416.
    19. Federico A. Sturzenegger, 1992. "Currency Substitution and the Regressivity of Inflationary Taxation," UCLA Economics Working Papers 656, UCLA Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cnb:mpaper:2001/40. 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: (Jan Babecky). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.