Ratchet effects in currency substitution

an application to the Kyrgyz Republic by Joannes Mongardini

Publisher: International Monetary Fund, Policy Development and Review Department and European II Department in [Washington, D.C.]

Written in English
Published: Pages: 23 Downloads: 995
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Subjects:

  • Currency substitution -- Kyrgyzstan.,
  • Monetary policy -- Kyrgyzstan.,
  • Foreign exchange -- Kyrgyzstan.,
  • Interest rates -- Kyrgyzstan.
  • Edition Notes

    Statementprepared by Joannes Mongardini and Johannes Mueller.
    SeriesIMF working paper -- WP/99/102
    ContributionsMueller, Johannes., International Monetary Fund. Policy Development and Review Dept., International Monetary Fund. European II Dept.
    The Physical Object
    Pagination23 p. :
    Number of Pages23
    ID Numbers
    Open LibraryOL18721363M

a long-run relationship between currency substitution and expected exchange rate change in Turkey. The elasticity of currency substitution appeared to be high but consistent with those estimated for other high inflation developing countries. The results further supported the presence of a ratchet/hysteresis effect proxied by a trend variable. 3 This builds in part on an older literature on the use of foreign currency notes and coin Πso-called currency substitution (see Box 1). 4 As the expression goes in Latin America, one has to choose between eating (higher interest rate) and sleeping (protection against devaluation). Previous studies on factors affecting the substitution process between domestic currency and foreign currency (i.e., the dollarization process) in Cambodia indicate that exchange rate movement is one of its important determinants. These studies tend to assume that the effects of this movement are symmetric. However, domestic currency appreciation and depreciation can have asymmetric impacts on. Currency substitution can be full or partial. Most, if not all, full currency substitution has taken place after a major economic crisis, for example, Ecuador and El Salvador in Latin America and Zimbabwe in Africa. Some small economies, for whom it is impractical to maintain an independent currency, use those of their larger neighbours; for example Liechtenstein uses the Swiss franc.

Ratchet Effects in Currency Substitution International Monetary Fund December 1, Currency substitution has been a common issue in the design of monetary policy in most transition economies. Keidanren: A Japanese abbreviation for the Japan Federation of Economic Organizations. The Keidanren was created in to address the issues and concerns of Japanese businesses in the postwar. as a hysteresis, also termed the ratchet effect, where depositors get used to holding foreign currency deposits and do not reverse them back to domestic currency due to some behavioral inertia or habit (Honohan and Shi, , Brown and Stix, ). Asset substitution. the Ratchet Effect," Rand Journal of Economics, Summer (with Larry Samuelson). Barter and Currency Substitution in Post-Soviet Societies, Cambridge University Press, November (with Sergei Guriev). Book Reviews Review of Maital and Lipnowski, "Macroeconomic Conflict and Social.

that affect diffusion such as network effects and informational barriers, the empirical literature has empha-sized the role of consumer adoption. Firms complement this process of diffusion by choosing the extent to The well-known ratchet effect suggests that within firms, there is an in-. the Ratchet Effect," Rand Journal of Economics, Summer (with Larry Barter and Currency Substitution in Post-Soviet Societies, Cambridge University Press, November (with Sergei Guriev). “Stability and Disorder: An Evolutionary Analysis of the Virtual Economy,” in Book Reviews Review of Maital and Lipnowski. Currency substitution and trade can be analyzed in the absence of reserve currency and vehicle currency effects, using the readily accessible data on holdings of sterling by nonresidents and corresponding bilateral trade. This article aims to investigate empirically the determinants of currency substitution for the period Nineteen recent studies have already investigated the effect of currency union on trade, resulting in point estimates of the effect. In an attempt to summarize the current state of the debate, meta-analysis is used here to combine the disparate estimates. The chief findings are that (a) the hypothesis that there is no effect of currency union on trade can be rejected at standard.

Ratchet effects in currency substitution by Joannes Mongardini Download PDF EPUB FB2

Currency substitution is now a common issue in the design of monetary policy in most transition economies. This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic by including a ratchet variable in the model specification.

The main conclusion of the paper is that, while some degree of persistence is present in the allocation of bank deposit, currency substitution in the. Downloadable. Currency substitution is now a common issue in the design of monetary policy in most transition economies.

This paper analyzes the persistence of this phenomenon Ratchet effects in currency substitution book the Kyrgyz Republic by including a ratchet variable in the model specification. The main conclusion of the paper is that, while some degree of persistence is present in the allocation of bank deposit, currency.

PDF | This study examines the persistence of currency substitution in Nigeria by applying the Bounds testing approach to cointegration and including | Find, read and cite all the research you.

Currency substitution is now a common issue in the design of monetary policy in most transition economies. This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic by including a ratchet variable in the model specification.

The main conclusion of the paper is that, while some degree of persistence is present in the allocation of bank deposit, currency substitution in the Cited by: 3. Downloadable (with restrictions). Currency substitution has been a common issue in the design of monetary policy in most transition economies.

This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic up to start of the Russia crisis by including a ratchet variable in the model specification.

It concludes that, while some degree of persistence was present in the allocation. Keywords: Currency Substitution, Ratchet Effect, Cointegration, Monetary Policy, ARDL Model. JEL Classification: C22, E41, E51 Introduction Currency substitution describes a situation in which a more stable foreign currency is being used extensively by residents of an economy alongside or instead of the domestic currency.

Keywords: Currency substitution ratchet effects monetary policy. JEL Classification: E41 E52 F Suggested Citation: Suggested Citation. Mongardini, Joannes and Mueller, Johannes, Ratchet Effects in Currency Substitution An Application to the Kyrgyz Republic (July ).

IMF Working Paper, Vol., pp. RATCHET EFFECTS IN CURRENCY SUBSTITUTION Figure 1. Armenia, Azerbaijan, Belarus, Estonia, and Georgia: Degree of Currency Substitution and Depreciation Rate, –98 –30 0 30 60 90 –10 0 10 20 30 40 50 60 70 80 90 QI 98 QI QIII 97 QI QIII 96 QI QIII 95 QI QIII 94 QI QIII 93 Armenia.

This paper analyzes the persistence of currency substitution in Turkey through inclusion of a ratchet variable, the past peak value of Ratchet effects in currency substitution book currency substitution. Results using an autoregressive distributed lag (ARDL) approach suggest that currency substitution during.

In other words, new studies have presented evidence which show that currency substitution exhibit ‘ratchet effect’ or hysteresis.

That is, currency substitution escalates with macroeconomic instability but declines slightly or not at all after stabilization [ Balino, Bennet, and Borensztein (), Ize and Levy-Yeyati (), Kokenyne. PDF | Currency substitution is an important phenomenon that has emerged with the liberalization of economies.

In the Turkish economy, the studies about | Find, read and cite all the research. BibTeX @MISC{X_ratcheteffects, author = {Pv Q X and Joannes Mongardini and Johannes Mueller}, title = {Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic}, year = {}}.

Currency substitution is a phenomenon defined as the substitution of domestic currency by foreign currency in its role as a means of payment, unit of accounts, and store of value (e.g., Calvo and Végh,Samreth, ). This occurs in many developing and regime-switching countries that experience high inflation or high volatility of.

Harrison and Vymyatnina () modeled currency substitution effect in Russia in – by using several currency substitution indicators. More specifically, they exposed the presence of a steady trend to dedollarization in Russia’s economy.

Using Ratchet Variables in Currency Substitution Models Using rathcet types of explanatory. Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic.

By Joannes Mongardini and Johannes Mueller. Abstract. Currency substitution has been a common issue in the design of monetary policy in most transition economies. This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic up to start of the.

We use the Threshold ARCH model to consider the ratchet effect of currency substitution and sample periods in the s, during which time the economies of the sample countries stabilized, while the U.S. dollar and euro depreciated against other major currencies following the recent global financial crisis.

upward ratchet price effect of the currency substitution process indicates that in the bargaining between the seller and the buyer, the former tended to dominate by exploiting the dual-currency price in her favor.4 Furthermore, by documenting the real price effect of a currency substitution process, our results are added to the existing.

Argentina asymmetric reaction Bank of Lebanon Bolivia Calvo and Vegh cash casual evidence Chart coefficient estimates CS-ratio ratchet currency depreciation currency substitution ratio de-dollarization degree of currency degree of dollarization demand for foreign dependent variable deposits of residents depreciation rate different definitions.

Abstract. This paper builds an inter-temporal model to study the value and network effects in the process of currency substitution. According to our model, we can define the inaction area and malignant area by taking real interest rate difference and network effect variable as two axes.

Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic JOANNES MONGARDINI and JOHANNES MUELLER* CurrencS substitution has been a common issue in the design of monetary policy in most transition economies. This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic up to start of the Russia crisis by.

currency substitution), fcd m, consist of two components: a permanent component (i.e., the ratchet effect, z) and a transitory component (i.e., speculation, p): ()() fcd m t = f 1 p t,z t +e t1. (1) The ratchet effect (z) has a long memory comprising all the permanent effects of changes in the opportunity cost of holding domestic money.

CURRENCY SUBSTITUTION AND THE EFFECTS ON. CURRENCY SUBSTITUTION AND THE EFFECTS ON. Posted on Author fygyd. Effects of Currency Substitution. Our estimation results indicate that the interest rate differential is a significant currency substitution determinant in the Laos economy.

Moreover, there is evidence supporting the existence of a ratchet effect in the currency allocation of deposits, implying that particularly strong policies should be pursued over an extended period of time.

of currency substitution for the parameters of the cointegration vector. According to the theory consistent and data-acceptable long-run relationship between the variables, there is a strong ratchet (hysteresis) effect in currency-asset substitution in Turkey.

The study contains also the policy implications of both. effects on the degree of currency substitution, as illustrated by the case of Bolivia, where dollarization has remained at a particularly high level after stabilization. The paper presents a simple model of currency substitution with network effects among agents with heterogeneous transaction costs.

In general, the traditional model for currency substitution explains the dynamics of the euro and dollar as substitute foreign currencies.

Introduction: Ahead of the euro’s launch, the new currency was expected to seriously challenge the US dollar’s preeminent role as the world’s leading monetary vehicle and substitute currency.

Portes. (), etc. In this paper we will avoid, wherever possible, the term “currency substitution” and will replace it with the term “substitution in the structure of bank deposits” as the most accurate definition of the effect examined in the paper. 3 In economic literature, this effect is known as “ratchet effect.

of value are significant determinants of currency substitution. The results show that currency substitution has important monetary policy implications.

Keywords: currency substitution, network externalities, ratchet effects, foreign currency, domestic currency, euro 1. Introduction Currency substitution is a phenomenon in which domestic. Currency substitution has been a common issue in the design of monetary policy in most transition economies.

This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic up to start of the Russia crisis by including a ratchet variable in the model specification. It concludes that, while some degree of persistence was present in the allocation of bank deposits at that time.

CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): It is widely documented that currency substitution (using foreign money in transactions) increases in periods of high inflation but does not decline once inflation is reduced. The paper uses survey data from Bulgaria, which experienced this phenomenon, to investigate the origins of this ratchet effect.

The currency substitution experienced by the Israeli real estate market in the past decades serves as a unique case for studying the effect of the anchoring heuristic on prices. We hypothesize that players utilize current and past exchange rates between the old and new currency to .This study tests for the existence of currency substitution and attempts to gauge its magnitude in Nigeria.

The analysis was based on a multi-perspective unrestricted portfolio balance model. The stock of foreign currency deposits in Nigeria and the ratio of deposits denominated in foreign currency in the domestic banking system to deposits denominated in the domestic currency were modelled.cal currency substitution model that captures the ratchet effect.

The econometric model adopted in this study lies on a simple structural model based on a standard money demand function that incorporates interest rate differential and deprecia tion. Following Mongardini and Mueller (, ), the currency substitution model is.