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Exchange Rate Movements in a Dollarized Economy: The Case of Cambodia

Sok Heng Lay, Makoto Kakinaka and Koji Kotani ()

No EMS_2010_18, Working Papers from Research Institute, International University of Japan

Abstract: There has been an on-going debate on whether dollarization helps stabilize exchange rates for emerging economies. This paper discusses this issue in a highly dollarized country, Cambodia, by empirically examining the relationship between dollarization and exchange rate movements. The GARCH analysis suggests that dollarization induces the depreciation of the Cambodian riel as well as intensifies exchange rate variability. The result is consistent with the argument that dollarization is one of the crucial causes of exchange rate instability. Dollarization in Cambodia could be a constraint on poverty reduction since it tends to affect the living standard of the poor who earn the income in the riel through the depreciation of the currency and intensified volatility of exchange rates.

Keywords: dollarization; exchange rates; Cambodia (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-11
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