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"Here, dollars, dollars ..."estimating currency demand and worldwide currency substitution

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  • Brian M. Doyle

Abstract

In measuring the percentage of foreign-held U.S., German, and Swiss currencies for the period of the 1960s through the 1990s, I obtain estimates much different from those of others. Using currency demand equations implied by cointegrating vectors for Canada, the Netherlands, and Austria, I estimate that in 1996 only 30% of U.S. currency was held outside the United States, and as much as 69% of German currency was held outside Germany. The U.S. estimate falls slowly over the 1960s, reaching a low of 5% in the first half of the 1970s, then rises through the early 1980s and again during the 1990s. Given that foreign holdings of the U.S., German, and Swiss currencies constitute the bulk of international currency substitution in the world, I find that, adjusted for inflation, currency substitution roughly tripled from 1986 to 1996.

Suggested Citation

  • 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.).
  • Handle: RePEc:fip:fedgif:657
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    References listed on IDEAS

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    7. Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 45-59, January.
    8. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    9. Richard D. Porter & Ruth Judson, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 883-903.
    10. Seitz, Franz, 1995. "The circulation of Deutsche Mark abroad," Discussion Paper Series 1: Economic Studies 1995,01e, Deutsche Bundesbank.
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    12. Case M. Sprenkle, 1993. "The Case of the Missing Currency," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 175-184, Fall.
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    Keywords

    Money ; Demand for money;

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