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Euroization in Central, Eastern and Southeastern Europe – New Evidence On Its Extent and Some Evidence On Its Causes

We present new evidence on de facto euroization in eleven Central, Eastern and Southeastern European countries. Estimates of the extent of foreign currency cash holdings are derived from survey data. Furthermore, we define overall euroization indices, relating both assets and cash holdings. Results confirm that some countries are heavily euroized and that euro cash holdings constitute a sizeable share of local currency in circulation. Euroization levels in other –mainly Central European– countries are low and economically insignificant. Evidently, high euroization bears various significant consequences for economic policies. Therefore, we inquire on the determinants of euroization. We find that euroization is highly correlated with the quality of past economic governance, reflecting past periods of instabilities. In contrast, the more recent –pre-financial crisis– course of economic history had only limited impact. Thus, our results are in line with the view that policy makers in highly euroized countries are severely constrained by past events and that euroization levels might be difficult to revert through stable macroeconomic policies.

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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 159.

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Length: 41
Date of creation: 27 Nov 2009
Date of revision:
Handle: RePEc:onb:oenbwp:159
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  1. Guillermo Calvo & Carlos A. Végh Gramont, 1992. "Currency Substitution in Developing Countries: An Introduction," IMF Working Papers 92/40, International Monetary Fund.
  2. Miguel A. Savastano, 1996. "Dollarization in Latin America: Recent Evidence and Some Policy Issues," IMF Working Papers 96/4, International Monetary Fund.
  3. Lebre de Freitas, M., 2004. "The dynamics of inflation and currency substitution in a small open economy," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 133-142, February.
  4. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
  5. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
  6. Eduardo Levy Yeyati, 2005. "Financial Dollarisation: Evaluating The Consequences," Business School Working Papers findollarisation, Universidad Torcuato Di Tella.
  7. Helmut Stix, 2008. "Euroization: What Factors drive its Persistence?," Working Papers 140, Oesterreichische Nationalbank (Austrian Central Bank).
  8. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 North American Summer Meetings 456, Econometric Society.
  9. Edgar L Feige, 2003. "Dynamics of Currency Substitution, Asset Substitution and De facto Dollarisation and Euroisation in Transition Countries," Comparative Economic Studies, Palgrave Macmillan, vol. 45(3), pages 358-383, September.
  10. Doris Ritzberger-Grünwald & Helmut Stix, 2007. "Are Euro Cash Holdings in Central and Eastern Europe Driven by Experience or Anticipation? Results from an OeNB Survey," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 77-100.
  11. Evan Kraft, 2003. "Monetary Policy under Dollarisation: The Case of Croatia," Comparative Economic Studies, Palgrave Macmillan, vol. 45(3), pages 256-277, September.
  12. Edgar Feige & James Dean, 2002. "Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities and Irreversibility," International Finance 0205003, EconWPA.
  13. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2007. "Financial dollarization: the role of banks and interest rates," Working Paper Series 0748, European Central Bank.
  14. Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis: The Case of Russia," IMF Working Papers 03/96, International Monetary Fund.
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