Revisiting the Impacts of Exchange Rate Movement on the Dollarization Process in Cambodia

Sovannroeun Samreth and Pagna Sok

MPRA Paper from University Library of Munich, Germany

Abstract: Previous studies on factors affecting the substitution process between domestic currency and foreign currency (i.e., the dollarization process) in Cambodia indicate that exchange rate movement is one of its important determinants. These studies tend to assume that the effects of this movement are symmetric. However, domestic currency appreciation and depreciation can have asymmetric impacts on people’s behaviors when substituting between domestic currency and foreign currency. Therefore, this study re-examines the impacts of exchange rate movement on the dollarization process in Cambodia by taking into account the possibility of these asymmetric effects. A cointegration analysis framework is adopted for the estimation of a model that also incorporates a hysteresis effect of the dollarization process. The estimation results of quarterly data between 1994Q2 to 2017Q4 indicate that Cambodian Riel depreciation and appreciation do have asymmetric impacts on its dollarization process. These results provide some implications for policy actions addressing the dollarization issue in Cambodia.

Keywords: Asymmetric Effects; Currency Substitution; Dollarization (search for similar items in EconPapers)
JEL-codes: E51 F41 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-mac, nep-mon and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:91240

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