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Currency substitution in Romania

  • Lazea, Valentin
  • Cozmanca, Bogdan Octavian

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.

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File URL: http://mpra.ub.uni-muenchen.de/19813/2/MPRA_paper_19813.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19813.

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Date of creation: May 2003
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Handle: RePEc:pra:mprapa:19813
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  1. Bas van Aarle & Nina Budina, 1997. "Currency Substitution in Eastern Europe," Politická ekonomie, University of Economics, Prague, vol. 1997(2), pages 171-182.
  2. 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.
  3. 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 325-53, August.
  4. Sunil Sharma & Neil R. Ericsson, 1998. "Broad money demand and financial liberalization in Greece," Empirical Economics, Springer, vol. 23(3), pages 417-436.
  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. Luboš Komárek & Martin Meleck�, 2003. "Currency Substitution in a Transitional Economy with an Application to the Czech Republic," Eastern European Economics, M.E. Sharpe, Inc., vol. 41(4), pages 72-99, July.
  7. Subramanian S. Sriram, 1999. "Survey of Literatureon Demand for Money; Theoretical and Empirical Work with Special Reference to Error-Correction Models," IMF Working Papers 99/64, International Monetary Fund.
  8. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
  9. 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 3.
  10. Miguel Lebre de Freitas, 2003. "Revisiting Dollarisation Hysteresis: Evidence from Bolivia, Turkey and Indonesia," NIPE Working Papers 12/2003, NIPE - Universidade do Minho.
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