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Network Externalities and Dollarization Hysteresis; The Case of Russia

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  • Nienke Oomes

Abstract

Dollarization in Russia increased rapidly during the early 1990s, but failed to come down in the second half of the 1990s in spite of exchange rate stabilization. To explain this "dollarization hysteresis," this paper develops a model in which network externalities in the demand for currency can generate multiple stable steady states for the dollarization ratio. The model is estimated using a new source of data on dollar currency holdings in Russia. On the basis of these estimates, which confirm the existence of network externalities, the paper discusses several policies that could result in a permanent decrease in dollarization.

Suggested Citation

  • Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis; The Case of Russia," IMF Working Papers 03/96, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/96
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 Latin American Meetings 196, Econometric Society.
    2. Helmut Stix, 2010. "The Euro as a Safe Haven Asset in Central, Eastern and South-Eastern Europe," Chapters,in: The Euro and Economic Stability, chapter 10 Edward Elgar Publishing.
    3. Edlira Narazani, 2013. "A Micro Level Perspective of Euroization in Albania," wiiw Balkan Observatory Working Papers 109, The Vienna Institute for International Economic Studies, wiiw.
    4. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-50, May.
    5. repec:bof:bofitp:urn:nbn:fi:bof-201511231446 is not listed on IDEAS
    6. Oomes, Nienke & Ohnsorge, Franziska, 2005. "Money demand and inflation in dollarized economies: The case of Russia," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 462-483, September.
    7. Gunther Schnabl, 2004. "International Capital Markets, Macroeconomic Stability, and Exchange Rate Stabilization in the CIS and East Asia," International Finance 0410009, EconWPA, revised 01 Mar 2005.
    8. Meissner, Christopher M. & Oomes, Nienke, 2009. "Why do countries peg the way they peg? The determinants of anchor currency choice," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 522-547, April.
    9. Reza Y. Siregar & Narith Chan, 2014. "Factors behind Foreign Currency Holding by Household in Cambodia," CAMA Working Papers 2014-58, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Mileva, Elitza & Siegfried, Nikolaus, 2012. "Oil market structure, network effects and the choice of currency for oil invoicing," Energy Policy, Elsevier, vol. 44(C), pages 385-394.
    11. Schnabl, Gunther, 2005. "International capital markets and exchange rate stabilization in the CIS," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 425-440, September.
    12. Anja Shortland, 2004. "The Role of Politics and Institutions in LDC Currency Devaluations," Discussion Papers in Economics 04/30, Department of Economics, University of Leicester.
    13. Helmut Stix, 2011. "Euroization: what factors drive its persistence? Household data evidence for Croatia, Slovenia and Slovakia," Applied Economics, Taylor & Francis Journals, vol. 43(21), pages 2689-2704.
    14. repec:spr:jecfin:v:41:y:2017:i:4:d:10.1007_s12197-016-9379-1 is not listed on IDEAS
    15. Pang, Xiaobo & Huang, Weiting, 2005. "货币替代中的价值效应与网络效应
      [Value effect and network effect in the process of currency substitution]
      ," MPRA Paper 11627, University Library of Munich, Germany, revised May 2007.
    16. Brad Setser & Ioannis Halikias & Alexander Pitt & Christoph B. Rosenberg & Brett E. House & Jens Nystedt & Christian Keller, 2005. "Debt-Related Vulnerabilities and Financial Crises," IMF Occasional Papers 240, International Monetary Fund.
    17. repec:onb:oenbwp:y::i:159:b:1 is not listed on IDEAS
    18. Helmut Stix, 2008. "Euroization: What Factors drive its Persistence?," Working Papers 140, Oesterreichische Nationalbank (Austrian Central Bank).
    19. Roger Myerson & Serguey Braguinsky, 2005. "Oligarchic Property Rights and Investment," 2005 Meeting Papers 49, Society for Economic Dynamics.
    20. Schnabl, Gunther, 2005. "International Capital Markets and Informal Dollar Standards in the CIS and East Asia," HWWA Discussion Papers 326, Hamburg Institute of International Economics (HWWA).
    21. Anna Krupkina & Alexey Ponomarenko, 2017. "Deposit dollarization in emerging markets: modelling the hysteresis effect," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(4), pages 794-805, October.
    22. Bernardo X. Fernández Tellería, 2007. "Dollarization hysteresis, network externalities and the “past legacy” effect: the case of Bolivia," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 167-217, marzo-abr.
    23. Ramon-Ballester, Francisco & Wezel, Torsten, 2007. "International financial linkages of Latin American banks: the effects of political risk and deposit dollarisation," Working Paper Series 744, European Central Bank.
    24. 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).
    25. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters,in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42 Bank for International Settlements.

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