Komárek, Luboš and Melecky, Martin (2001) Currency substitution in the transition economy: a case of the Czech Republic 1993-2001. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers).

Preview

PDF WRAP_Komarek_twerp613.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (360Kb)

Abstract

Currency substitution appears to be an important issue affecting the design of monetary policy, especially in transition economies. Therefore, this paper strives to analyze the particular relevance of a currency substitution phenomenon for the Czech Republic is case. We initially discuss various approaches and definitions of currency substitution that found in the literature. Subsequently, we discuss the role of currency substitution in small open economies in transition with some illustrations relating to the Czech Republic - we distinguish and analyse a locally and globally substituting currency from a substituted one and consequences of euroization. The empirical part of this paper presents estimations of modified Branson and Henderson portfolio model for the Czech Republic’s case. This provides a multi-perspective approach to currency substitution in a broad sense. Further, we attempt to intensify the robustness of our estimation, applying several cointegration techniques. These are namely the Johansen procedure, the ARDL, the DOLS and the ADL. Finally, we discuss potential implications of currency and assets substitution according to our estimates present in the Czech economy.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Currency substitution -- Czechy Republic, Demand for money -- Czech Republic, Money -- Czech Republic, Development economics -- Czech Republic, Czech Republic -- Economic conditions -- 1993-
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	November 2001
Number:	No.613
Number of Pages:	37
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Grantová agentura České republiky [Grant Agency of the Czech Republic] (GACR)
Grant number:	402/00/1213 (GACR)
References:	AARLE, VAN B.-BUDINA, N. (1995). Currency Substitution in Eastern Europe. Tilburg University, Center for Economic Research, Discussion Paper Series no. 2 ARLT, J.-GUBA, M.-RADKOVSKÝ, Š.-SOJKA, M.-STILLER, V. (2001). Vliv vybraných faktorù na vývoj poptávky po penìzích v letech 1994-2000. ÈNB, VP è. 34. ARRAU, P. – DE GREGORIO, J. – REINHART, C. – WICKHAM, P. (1991): The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation. International Monetary Fund Working Paper, IMF Working Papers 91/45, Washington, D.C. BANA, I. M. – HANDA, J. (1990): Currency Substitution and Transaction Costs. Empirical Economics, vol. 15, no. 3, 1990. BRANSON, W. H.- HENDERSON, D. W. (1985): The Specification and Influence of Assets Markets: in R. W. Jones and P.B. Kenen, eds. Handbook of International Economics North-Holland, Amsterdam, pp. 749-806 BUFMAN, G. – LEIDERMAN, L. (1992): Simulating an Optimizing Model of Currency Substitution. Revista de Analisis Economico, vol. 7, no. 1, 1992. CALVO, G. A. – VÉGH, C. A. (1992): A Model of Exchange Rate Determination Under Currency Substitution and Rational Expectations. Journal of Political Economy, vol. 85, no. 3, 1992. CANZONERI, M. B. – DIBA, B. T. (1992): The Inflation Discipline of Currency Substitution. European Economic Review, vol. 36, no. 4, 1992. DOYLE, B. M. (2000). „Here, Dollars, Dollars…“ – Estimating Currency Demand and Worldwide Currency Substitution. International Finance Discussion Papers no.657, Board of Governors of the Federal Reserve System. FEIGE, E. L.-FAULEND, M.-ŠONJE, V.-ŠOŠIÆ, V. (2000): Currency Substitution, Unofficial Dollarization and Estimates of Foreign Currency Held Abroad: The Case of Croatia: in Blejer M. and Skreb M., eds. Financial Vulnerability and the Exchange Rate Regime, MIT Press. GIOVANNINI, A. – TURTELBOOM, B. (1992): Currency Substitution. National Bureau of Economic Research Working Paper Series, no. 4232, Cambridge 1992. HANOUSEK, J. – KUBIN, J. – TÙMA, Z. (1995): Poptávka po penìzích a ražebné v období transformace. Finance a úvìr, no. 7, 1995. HANOUSEK, J.-TÙMA, Z. (1995). Poptávka po penìzích v èeské ekonomice. Finance a úvìr 5/1995. JOHANSEN, S.-JUSELIUS, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration - With Applications to Demand for Money. Oxford Bulletin of Economics and Statistics, vol. 52(2), pp 169-210 KLACEK, J.-ŠMÍDKOVÁ, K. (1995). The Demand-for-Money Function: the Case of the Czech Economy. ÈNB VP è. 41 Praha. KOMÁREK, L. (2001): Další pohled na mikroekonomickou dimenzi mìnového kurzu. Zatím nepublikováno, 2001. MADHAVI, M. – KAZEMI, H. B. (1996): Indeterminacy and Volatility of Exchange Rate under Imperfect Currency Substitution. Economic Inquiry, vol. 1, 1996. MCKINNON , R. I. (1985): Two Concepts of International Currency Substitution. In.: The Economics of the Caribbean Basin, (eds.) Connolly, M.D. and J. McDermott, pp. 101-113. MCNELIS , P. D. – ASILIS, C. (1992): A Dynamic Simulation Analysis of Currency Substitution in an Optimizing Framework with Transaction Costs. Revista de Analisis Economico, vol. 7, no. 1, 1992. MELECKÝ, M. (2001). Stabilita dlouhodobé poptávky po široce definovaných penìzích v otevøené ekonomice: pøípad ÈR 1994-2000. ÈNB VP, mimeo. MISHKIN, F. S. (2001): Financial Policy and the Prevention of Financial Crises in Emerging Market Countries. NBER Working Paper Series No. 8087 MONGARDINI, J.-MUELLER, J. (1999): Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic. IMF Working Paper, Wp/99/102. MULLIGAN, C. B.-SALA-I-MARTIN, X. X. (1996). Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy. NBER Working Paper Series no. 5504 PESARAN, M. H.-SHIN, Y.-SMITH, R. J. (1996). Testing for the Existence of a Long-Run Relationship. DAE Working Paper no. 9622, University of Cambridge. ROGERS, J. H. (1990): Foreign Inflation Transmission under Flexible Exchange Rates and Currency Substitution. Journal of Money, Credit and Banking, vol. 22, no. 2, 1992. ROJAS-SUAREZ, L. (1992): The Currency Substitution and Inflation in Peru. Revista de Analisis Economico, vol. 7, no.1, 1992. ROUBINI, N.-GRILLI, V. (1995). Liquidity Models in Open Economies: Theory and Empirical Evidence. NBER Working Paper Series no. 5313. SAHAY, R. – VEGH, C. A. (1995): Dollarization in Transition Economies: Evidence and Policy Implications. International Monetary Fund Working Paper, 103/95/96, Washington , D.C. SARAJEVS, V. (2000): Econometric Analysis of Currency Substitution: A Case of Latvia. Bank of Finland Discussion Papers, Institute for Economies in Transition, no. 4, 2000. SOMMER, M. (1997). Vazba mezi penìžní zásobou, agregátní nabídkou a nominálním domácím produktem ÈR v letech 1992-1996. Bankovnictví 16/97. STOCK, J. H.-WATSON, M. W. (1993). A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems. Econometrica 61, pp. 1035-1056. STURZENEGGER , F. (1992): Currency Substitution and the Regressivity of Inflationary taxation. Revista de Analisis Economico, vol. 7, no. 1, 1992. STURZENEGGER, F. (1997): Understanding the Welfare Implications of Currency Substitution. Journal of Economic Dynamic and Control, vol. 21, no. 2-3, 1997. THOMAS, L. R. (1985): Portfolio Theory and Currency Substitution. Journal of Money, Credit and Banking, vol. 17, no. 3, 1985. URIBE, M. (1997): Hysteresis in a Simple Model of Currency Substitution. Journal of Monetary Economics, vol. 40, no. 1, 1997.
URI:	http://wrap.warwick.ac.uk/id/eprint/1573

Request changes to a record

Actions (login required)

View Item