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TitleCurrency substitution, portfolio diversification and money demand
Author(s)Freitas, Miguel Lebre de
Veiga, Francisco José
KeywordsMoney demand
Currency substitution
Portfolio choice.
Issue date2006
PublisherBlackwell Publishing
JournalCanadian journal of economics
Citation"Canadian Journal of Economics". ISSN 0008-4085 39:3 (2006) 719-743.
Abstract(s)We extend the Thomas (1985) dynamic optimising model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case Currency Substitution decisions and Asset Substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six Latin American countries, we find evidence of currency substitution in Colombia, Dominican Republic and Venezuela, but not in Brazil and Chile.
AccessOpen access
Appears in Collections:NIPE - Artigos em Revistas de Circulação Internacional com Arbitragem Científica

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