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Currency substitution in Romania

Author

Listed:
  • Lazea, Valentin
  • Cozmanca, Bogdan Octavian

Abstract

The aim of this paper is to investigate the currency substitution phenomenon in Romania. We present the evolution of the DI (Dollarization Index) as it is defined by the IMF, the situation on the liabilities side and that of the banking sector. We assess the way in which the traditional functions of money have been affected by currency substitution. In the final part of this paper a demand for money function is estimated for Romania for a period between 1997:06—2003:03. This demand for money clearly demonstrates the existence of currency substitution between the domestic and foreign currencies. Also we test the stability of the model and conclude that despite a turbulent economic medium the demand for money function is stable.

Suggested Citation

  • Lazea, Valentin & Cozmanca, Bogdan Octavian, 2003. "Currency substitution in Romania," MPRA Paper 19813, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:19813
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    File URL: https://mpra.ub.uni-muenchen.de/19813/2/MPRA_paper_19813.pdf
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    References listed on IDEAS

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    1. Sunil Sharma & Neil R. Ericsson, 1998. "Broad money demand and financial liberalization in Greece," Empirical Economics, Springer, vol. 23(3), pages 417-436.
    2. Luboš Komárek & Martin Melecký, 2003. "Currency Substitution in a Transitional Economy with an Application to the Czech Republic," Eastern European Economics, Taylor & Francis Journals, vol. 41(4), pages 72-99, July.
    3. 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.).
    4. Subramanian S Sriram, 1999. "Survey of Literature on Demand for Money; Theoretical and Empirical Work with Special Reference to Error-Correction Models," IMF Working Papers 99/64, International Monetary Fund.
    5. Miguel Lebre de Freitas, 2003. "Revisiting Dollarisation Hysteresis: Evidence from Bolivia, Turkey and Indonesia," NIPE Working Papers 12/2003, NIPE - Universidade do Minho.
    6. 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.
    7. Keith Cuthbertson & Don Bredin, 2001. "Money demand in the czech republic since transition," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(4), pages 271-290.
    8. Dickey, David A & Rossana, Robert J, 1994. "Cointegrated Time Series: A Guide to Estimation and Hypothesis Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 325-353, August.
    9. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
    10. van Aarle, B. & Budina, N., 1995. "Currency substitution in Eastern Europe," Discussion Paper 1995-2, Tilburg University, Center for Economic Research.
    11. Bas van Aarle & Nina Budina, 1997. "Substituce měny ve východní Evropě
      [Currency Substitution in Eastern Europe]
      ," Politická ekonomie, University of Economics, Prague, vol. 1997(2), pages 171-182.
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    Citations

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    Cited by:

    1. Jelena Maravic & Mirjana Palic, 2005. "Econometric Analysis of Money Demand in Serbia," Working papers 2, National Bank of Serbia.

    More about this item

    Keywords

    currency substitution; money demand; cointegration; error-correction model; Romania;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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