Rachet Effects in Currency Substitution: An Application to the Kyrgyz Republic

July 1, 1999

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

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 economy at large has not yet reached a point where reversing it would be difficult. In this regard, there is still room for monetary policy to influence currency allocation in the private sector.

Subject: Commercial banks, Currencies, Demand for money, Depreciation, Dollarization, Financial institutions, Inflation, Monetary policy, Money, National accounts, Prices

Keywords: Commercial banks, CS definition, CS process, CS ratio, Currencies, currency substitution, Depreciation, depreciation rate, Dollarization, Inflation, management technique, monetary policy, ratchet effect, ratchet effects, ratio, U.S. dollar, WP

Pages:
23
Volume:
1999
DOI:
https://doi.org/10.5089/9781451852592.001
Issue:
102
Series:
Working Paper No. 1999/102
Stock No:
WPIEA1021999
ISBN:
9781451852592
ISSN:
1018-5941

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