Dollarization, Inflation Volatility and Underdeveloped Financial Markets in Transition Economies

Piontkovsky Ruslan ()

EERC Working Paper Series from EERC Research Network, Russia and CIS

Abstract: The paper analyzes the phenomenon of dollarization in a sample of transition economies: Ukraine, Russia, Poland, Czech Republic, Romania, Slovenia, Croatia, Latvia, and Lithuania. Using the Thomas' portfolio balance model, the author tests how the degree of dollarization depends on the relative returns on financial assets, inflation volatility, and financial market development. The main conclusion from the analysis is that relative returns on assets (bank deposits in the domestic currency relative to deposits in foreign currencies) and inflation volatility have a significant effect on dollarization. The effect of financial market development is also captured, albeit indirectly, as dollarization is found to be dependent on the country’s balance of trade (the inflow of foreign currency).

Keywords: Ukraine; Russia; dollarization; asset substitution; currency substitution; transition economies; portfolio optimization; inflation volatility (search for similar items in EconPapers)
JEL-codes: E52 F41 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2003-05-21
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon, nep-rmg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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