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

Samreth, Sovannroeun and Sok, Pagna (2018): Revisiting the Impacts of Exchange Rate Movement on the Dollarization Process in Cambodia.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asymmetric Effects, Currency Substitution, Dollarization
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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