Network Externalities and Dollarization Hysteresis: The Case of Russia

Nienke Oomes

No 2003/096, IMF Working Papers from International Monetary Fund

Abstract: 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. To explain this "dollarization hysteresis," this paper develops a model in which network externalities in the demand for currency can generate multiple stable steady states for the dollarization ratio. The model is estimated using a new source of data on dollar currency holdings in Russia. On the basis of these estimates, which confirm the existence of network externalities, the paper discusses several policies that could result in a permanent decrease in dollarization.

Keywords: WP; foreign currency; dollarization ratio; depreciation rate; dollarization; currency substitution; ratchet effect; network externalities; Russia; dollarization hysteresis; currency dollarization; high-dollarization steady state; Currencies; Depreciation; Exchange rates; Monetary base (search for similar items in EconPapers)
Pages: 36
Date: 2003-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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