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Unofficial Dollarization in Latin America: Currency Substitution, Network Externalities and Irreversibility

Edgar Feige (), Vedran Šošiæ, Michael Faulend and Velimir Šonje
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Vedran Šošiæ: Croatian National Bank
Michael Faulend: Croatian National Bank
Velimir Šonje: Reifseinen Bank

International Finance from University Library of Munich, Germany

Abstract: We examine the extent, causes and consequences of the use of foreign currency as a co-circulating medium of exchange and store of value in Latin America. Using new estimates of the amount of foreign currency in circulation in the form of US dollars, we obtain unique measures of currency substitution, asset substitution, dollarization, and bank credibility for many Latin American countries. We also specify and estimate demand functions for foreign currency in circulation in Argentina in order to examine the dynamic consequences of network externalities for hysteresis and irreversibility.

Keywords: unofficial de facto dollarization; Latin America; currency substitution; asset substitution; foreign currency; network externalities; Argentina; irreversibility; underground economy (search for similar items in EconPapers)
JEL-codes: E4 E5 F3 H26 K42 P2 P3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-lam and nep-law
Date: 2002-05-10
Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP/PostScript; pages: 28 ; figures: included. Forthcoming in James W. Dean, Dominick Salvatore and Thomas Willett, eds. The Dollarization Debate, New York: Oxford University Press, 2002
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Handle: RePEc:wpa:wuwpif:0205002