Alla Fridman1
  • 1 National Research University Higher School of Economics, 20 Myasnitskaya Str., Moscow, 101000, Russian Federation

Currency Substitution and Money Demand in Russia

2007. Vol. 11. No. 1. P. 55–77 [issue contents]

This paper uses a dynamic money in the utility function model, where money services are produced both by domestic and foreign money balances, for empirical investigation of currency substitution between Russian roubles and U.S. dollars in the Russian economy during the period 1995–2004. Empirical results support the hypothesis of high degree of currency substitution: most of the estimates of elastic-city of substitution vary from 2 to 5.

Sharp fall in relative effectiveness of foreign currency in producing monetray servisies was reveiled for the period after the financial crises in 1998. One of the possible explantion comes from expectationes: the estimated probability of regime switch (from stabilization to the high inflation) corresponds to 0,35, which is relatively high.

It is demonstrated that dollarization has strong impact on the seignorage and have umbigouse effect on society welfare. Under relatively small rate of inflation society may benefit from dedollarization. The obtained estimates for the inflation losses in dollarised economy are found to be greater than similar estimates for deve-loped economies.
Citation: Friedman A. (2007) Zameshchenie valyut i spros na den'gi v Rossii [Currency Substitution and Money Demand in Russia]. Ekonomicheskiy zhurnal VShE, vol. 11, no 1, pp. 55-77 (in Russian)
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