Network Externalities and Dollarization Hysteresis: The Case of Russia

Author/Editor:

Nienke Oomes

Publication Date:

May 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Dollarization in Russia increased rapidly during the early 1990s, but failed to come down in the second half of the 1990s in spite of exchange rate stabilization. To explain this "dollarization hysteresis," this paper develops a model in which network externalities in the demand for currency can generate multiple stable steady states for the dollarization ratio. The model is estimated using a new source of data on dollar currency holdings in Russia. On the basis of these estimates, which confirm the existence of network externalities, the paper discusses several policies that could result in a permanent decrease in dollarization.

Series:

Working Paper No. 2003/096

Subject:

English

Publication Date:

May 1, 2003

ISBN/ISSN:

9781451851939/1018-5941

Stock No:

WPIEA0962003

Pages:

36

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