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Money Demand and Inflation in a Highly Dollarized Economy: Fighting Inflation in Cambodia

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  • Chanthol, Hay

Abstract

Money supply in a highly dollarized Cambodian economy appears to be highly unstable because the composition of domestic currency in aggregate money supply is very small. During its transition towards a market economy, Cambodia embarked upon a path of disinflation through dollarization and stable exchange rate. In this paper, the trend and behavior of money supply, money demand and inflation are examined, and a model is developed to explain the determinants of inflation under dollarization and estimate it for Cambodia in the 2000s using a two-step procedure. This paper also shows that management of rice price, gasoline price with a restrictive monetary policy based on broadly defined money or total liquidity was essential for the Cambodian authorities to succeed in fighting inflation. This paper explain the behavior of inflation and the role that a central bank may play in its determination.

Suggested Citation

  • Chanthol, Hay, 2021. "Money Demand and Inflation in a Highly Dollarized Economy: Fighting Inflation in Cambodia," MPRA Paper 109805, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109805
    as

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    File URL: https://mpra.ub.uni-muenchen.de/109805/1/MPRA_paper_109805.pdf
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    References listed on IDEAS

    as
    1. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
    2. de Brouwer, Gordon & Ericsson, Neil R, 1998. "Modeling Inflation in Australia," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 433-449, October.
    3. Bordo, Michael D & Choudhri, Ehsan U, 1982. "Currency Substitution and the Demand for Money: Some Evidence for Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 48-57, February.
    4. Oomes, Nienke & Ohnsorge, Franziska, 2005. "Money demand and inflation in dollarized economies: The case of Russia," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 462-483, September.
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    Cited by:

    1. Boris I. Alekhin, 2023. "Interregional Differences in Inflation through the Prism of Ackley’s Theory," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 1, pages 8-25, February.
    2. Bayiley, Yitbarek Takele & Belay, Hibret, 2021. "Determinants of Commercial Bank Deposit Growth in Ethiopia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 30(02), October.

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    More about this item

    Keywords

    money demand; inflation; dollarization; exchange rate;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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