Currency Substitution in the Transition Economy: A Case of the Czech Republic 1993-2001

Lubos Komarek () and Martin Melecký

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Currency substitution appears to be an important issue affecting the design of monetary policy, especially in transition economies. Therefore, this paper strives to analyze the particular relevance of a currency substitution phenomenon for the Czech Republic is case. We initially discuss various approaches and definitions of currency substitution that found in the literature. Subsequently, we discuss the role of currency substitution in small open economies in transition with some illustrations relating to the Czech Republic - we distinguish and analyse a locally and globally substituting currency from a substituted one and consequences of euroization. The empirical part of this paper presents estimations of modified Branson and Henderson portfolio model for the Czech Republic’s case. This provides a multi-perspective approach to currency substitution in a broad sense. Further, we attempt to intensify the robustness of our estimation, applying several cointegration techniques. These are namely the Johansen procedure, the ARDL, the DOLS and the ADL. Finally, we discuss potential implications of currency and assets substitution according to our estimates present in the Czech economy.

Keywords: Currency substitution; demand for money; transition; Czech Republic; cointegration (search for similar items in EconPapers)
JEL-codes: C20 E41 E65 F31 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Currency Substitution in the Transition Economy: A Case of the Czech Republic 1993-2001 (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:613

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