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Modeling the Dollarization: A Case Study for Cambodia, Laos, and Vietnam

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  • Hee-Ryang Ra

Abstract

We model the dollarization of three transitional economies in south-east Asia: Cambodia, Laos, and Vietnam which have been experiencing the transition and reform process of the economy for the time period 1992-2007. Based on Rojas-Suarez (IMF Working Paper WP/92/33, 1992) work, we examine whether the holdings of US dollars depend on the effect of the expected rate of depreciation in market exchange rates as expected by the model. Also, we examine whether the effects are proportional to the degree of the dollarization of the economy. The empirical results present that there are positive effects (expected) of the expected rate of depreciation in market exchange rates on the holdings of US dollars. The coefficients are statistically significant only for Cambodia and Laos, not for Vietnam. The effect is strongest for Cambodia, and this may reflect the fact that Cambodia's dollarization is stronger than those of Laos and Vietnam.

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  • Hee-Ryang Ra, 2008. "Modeling the Dollarization: A Case Study for Cambodia, Laos, and Vietnam," Global Economic Review, Taylor & Francis Journals, vol. 37(2), pages 157-169.
    • Handle: RePEc:taf:glecrv:v:37:y:2008:i:2:p:157-169
    DOI: 10.1080/12265080802021177
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    References listed on IDEAS

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    1. Alberto Giovannini & Bart Turtelboom, 1992. "Currency Substitution," NBER Working Papers 4232, National Bureau of Economic Research, Inc.
    2. Mr. Miguel A Savastano, 1996. "Dollarization in Latin America: Recent Evidence and Some Policy Issues," IMF Working Papers 1996/004, International Monetary Fund.
    3. Mr. Benedict J. Clements & Mr. Gerd Schwartz, 1992. "Currency Substitution: The Recent Experience of Bolivia," IMF Working Papers 1992/065, International Monetary Fund.
    4. Mr. Guillermo Calvo & Mr. Carlos A. Végh Gramont, 1992. "Currency Substitution in Developing Countries: An Introduction," IMF Working Papers 1992/040, International Monetary Fund.
    5. Ms. Liliana Rojas-Suárez, 1992. "Currency Substitution and Inflation in Peru," IMF Working Papers 1992/033, International Monetary Fund.
    6. Mr. Adam Bennett & Mr. Eduardo Borensztein & Mr. Tomás J. T. Baliño, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers 1999/003, International Monetary Fund.
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    Cited by:

    1. Inthiphone Xaiyavong & Toshihisa Toyoda, 2016. "Currency Substitution in Laos," Asian Economic Journal, East Asian Economic Association, vol. 30(1), pages 67-89, March.
    2. Chanthol Hay, 2021. "Dollarization and macroeconomic performance in Cambodia since the first 1993 general election: a historical perspective," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(2), pages 27-46, April.
    3. Sok Heng Lay & Makoto Kakinaka & Koji Kotani, 2010. "Exchange Rate Movements in a Dollarized Economy: The Case of Cambodia," Working Papers EMS_2010_18, Research Institute, International University of Japan.
    4. Hay, Chanthol, 2021. "Real dollarization in Phnom Penh, Evidence from two surveys," Japan and the World Economy, Elsevier, vol. 60(C).
    5. Samreth, Sovannroeun & Sok, Pagna, 2018. "Revisiting the Impacts of Exchange Rate Movement on the Dollarization Process in Cambodia," MPRA Paper 91240, University Library of Munich, Germany.
    6. Samreth, Sovannroeun, 2011. "An empirical study on the hysteresis of currency substitution in Cambodia," Journal of Asian Economics, Elsevier, vol. 22(6), pages 518-527.

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