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2002•RePEc: Research Papers in EconomicsRequires access

Currency substitution and the transactions demand for money in Vietnam

Christopher Adam, Michaël Goujon, Sylviane Guillaumont-Jeanneney, Invité

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Abstract

We estimate the demand for money in Vietnam during the 1990s within a framework which distinguishes between currency substitution and portfolio dimensions of dollarization. This leads to a representation for the demand function in which the long-run income elasticity of demand is no longer constant but is a function of the expected rate of depreciation. We find evidence for currency substitution only in the long-run, and for portfolio effects only in the short-run. We interpret this as being consistent with the existence of costs associated with changing the transactions technology.

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What this paper is about

We estimate the demand for money in Vietnam during the 1990s within a framework which distinguishes between currency substitution and portfolio dimensions of dollarization. This leads to a representation for the demand function in which the long-run income elasticity of demand is no longer constant but is a function of the expected rate of depreciation. We find evidence for currency substitution only in the long-run, and for portfolio effects only in the short-run. We interpret this as being consistent with the existence of costs associated with changing the transactions technology.

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Available abstract

We estimate the demand for money in Vietnam during the 1990s within a framework which distinguishes between currency substitution and portfolio dimensions of dollarization. This leads to a representation for the demand function in which the long-run income elasticity of demand is no longer constant but is a function of the expected rate of depreciation. We find evidence for currency substitution only in the long-run, and for portfolio effects only in the short-run. We interpret this as being consistent with the existence of costs associated with changing the transactions technology.

Key concepts: Currency substitution, Economics, Portfolio, Substitution (logic), Currency, Elasticity of substitution, Demand curve, Monetary economics

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