Currency Substitution in Developing Countries: An Introduction

Calvo, Guillermo and Vegh, Carlos (1992): Currency Substitution in Developing Countries: An Introduction.

Abstract

This paper reviews the main policy and analytical issues related to currency substitution in developing countries. The paper discusses, first, whether currency substitution should be encouraged or not; second, how the presence of currency substitution affects the choice of nominal anchors in inflation stabilization programs; third, the effects of changes in the rate of growth of the money supply on the real exchange rate; fourth, the interaction between inflationary finance and currency substitution; and, finally, issues related to the empirical verification of the currency substitution hypothesis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Currency substitution, dollarization, monetary policy
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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