Econometric analysis of currency substitution: A case of Latvia
No 4/2000, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition
This paper examines a price-level target in a model with a forward-looking CalvoTaylor Phillips curve.Contrary to conventional wisdom, it is found that price-level targeting leads to a better trade-off between inflation and output-gap variability than inflation targeting, when the central bank acts under discretion.In some cases, price-level targeting under discretion results in the same equilibrium as inflation targeting under commitment.The paper provides a comprehensive econometric analysis of currency substitution for Latvia.Rather than drawing inferences on the degree of currency substitution from domestic money demand modelling, the most common approach to empirical analysis of the phenomenon, direct modelling of currency substitution ratio is applied.Extensive model construction, estimation, evaluation and testing are performed.Methodological issues are also discussed.No simple policy recommendations can be made at this stage of research, but a number of instruments are identified, which can be used by the authorities to influence currency substitution behaviour.
References: Add references at CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bof:bofitp:2000_004
Access Statistics for this paper
More papers in BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().