The behavior of foreign currency holdings during currency crises: Causes and consequences
This paper evaluates the current literature on dollarization and finds it to be disappointing in its ability to explain many of the prevailling features of the dollarizations experiences in Latin America, Eastern Europe and the Former Soviet Union. The paper takes a different approach to the standard empirical studies, which usually extend a demand for money function to include international variables, by analyzing foreign currency holding behaviors in response to the sustainability and credibility of the exchange rate regime. The results are very promising and explain some of the previously unexplained phenomena which arise from dollarization.
Key wordscurrency crisis dollarization government credibility JEL classification E42 F31 F41
Unable to display preview. Download preview PDF.
- Arrau, P., de Gregorio, J., Reinhart, C, and P. Wickham. (1995). ‘The Demand For Money In Developing Countries: Assessing The Role Of Financial Innovations’,Journal of Development Economics 44, 2, 317–40.Google Scholar
- Banerjee, A., J. Dolado, J. Galbraith, and D. Hendry. (1993).Co-Intergration, Error Correction, And The Econometric Analysis Of Non-Stationary Data. OUP, Oxford (1993).Google Scholar
- Jchansen, S. (1988). ‘Statistical analysis of cointegrating vectors’,Journal of Economic Dynamics and Control, 12, 2, 231–54.Google Scholar
- Calvo, G., and C. Vegh. (1992). ‘Currency Substitution in Developing Countries: An Introduction’,Revista de Analisis Economico, 7, 1, 3–28.Google Scholar
- Guidotti, P., and C. Rodriguez. (1992). ‘Dollarization in Latin America: Gresham's Law in Reverse?’, IMF Staff Papers, 39, 518–44.Google Scholar
- Mizen, P. D. (1996). ‘Can Foreign Currency Deposits Prop Up A Collapsing Exchange Rate Regime?’, University of Nottingham discussion paper.Google Scholar
- Mizen, P. D., and E. J. Pentecost. (1996). In Mizen, P.D. and Pentecost, E.J. (Eds)The Macroeconomics of International Currencies: Theory, Policy and Evidence, Edward Elgar, 1996.Google Scholar
- Sahay, R., and C. Vegh. (1996). ‘Dollarization in transition economies: evidence and policy implications’, In Mizen, P.D. and Pentecost, E. J. (1996). (Eds)The Macroeconomics of International Currencies: Theory, Policy and Evidence, Edward Elgar, 1996.Google Scholar
- Savastano, M. A. (1990). ‘Speculative Attaks and Currency Substitution Under Managed Exchange Rate Regimes in Developing Courtries’, unpublished doctoral dissertation, UCLA.Google Scholar
- Savastano, M. A. (1992). The pattern of Currency Substitution in Latin America: An Overview’,Revista de Analisis Economico, 7, 1, 29–72.Google Scholar
- Savastano, M. A. (1996). ‘Dollarization in Latin America: Recent Evidence: Recent Evidence and Policy Issues’, in Mizen, P.D. and Pentecost, E. J. (1996) (Eds) The Macroeconomics of International Currencies: Theory, Policy and Evidence, Edward Elgar, 1996.Google Scholar