## Network Externalities and Dollarization Hysteresis: The Case of Russia

_IMF Working Papers, May 1, 2003_

## Source details

**Canonical URL:** [Network Externalities and Dollarization Hysteresis: The Case of Russia](https://www.imf.org/en/publications/wp/issues/2016/12/30/network-externalities-and-dollarization-hysteresis-the-case-of-russia-16475)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/network-externalities-and-dollarization-hysteresis-the-case-of-russia-16475/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/network-externalities-and-dollarization-hysteresis-the-case-of-russia-16475/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/network-externalities-and-dollarization-hysteresis-the-case-of-russia-16475/bundle-manifest.json)

## Bibliographic details
- Authors: Nienke Oomes
- Published: May 1, 2003
- Series: IMF Working Papers

---

### Summary and central finding
- 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.
- The paper develops a model in which network externalities in the demand for currency can generate multiple stable steady states for the dollarization ratio, providing an explanation for the observed "dollarization hysteresis."
- The model is estimated using a new source of data on dollar currency holdings in Russia.
- The estimates confirm the existence of network externalities.
- On the basis of these estimates, the paper discusses several policies that could result in a permanent decrease in dollarization.

### Model and mechanism
- Network externalities in the demand for currency can produce multiple stable steady states for the dollarization ratio.
- The multiple steady states mechanism explains how high-dollarization equilibria can persist even after exchange rate stabilization.

### Data and estimation
- Estimation relies on a new source of data on dollar currency holdings in Russia.
- Empirical estimates confirm the presence of network externalities affecting currency demand and dollarization dynamics.

### Policy discussion and implications
- The paper discusses several policies that could lead to a permanent decrease in dollarization (specific policy measures are evaluated on the basis of the model estimates and the confirmed network externalities).
- Policy design should account for network externalities and the possibility of multiple stable equilibria when aiming to reduce dollarization permanently.

---

## Content in this bundle

- **Network Externalities and Dollarization Hysteresis: The Case of Russia - ISCR/03/96**
  - [Network Externalities and Dollarization Hysteresis: The Case of Russia - ISCR/03/96 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2003/_wp0396.pdf.md){rel="alternate" type="text/markdown"}
  - [Network Externalities and Dollarization Hysteresis: The Case of Russia - ISCR/03/96 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2003/_wp0396.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/network-externalities-and-dollarization-hysteresis-the-case-of-russia-16475_