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Currency substitution, portfolio diversification, and money demand

Miguel de Freitas () and Francisco Veiga ()

Canadian Journal of Economics, 2006, vol. 39, issue 3, 719-743

Abstract: dynamic optimizing model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case currency substitution decisions and asset substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six Latin-American countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile.

JEL-codes: E41 F41 G11 (search for similar items in EconPapers)
Date: 2006
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Working Paper: Currency Substitution, Portfolio Diversification and Money Demand (2010) Downloads
Working Paper: Currency Substitution, Portfolio Diversification and Money Demand (2004) Downloads
Working Paper: Currency Substitution, portfolio Diversification and Money Demand (2004) Downloads
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