CURRENCY SUBSTITUTION IN ROMANIA - dofin.ase.ro.pptVIP

Academy of Economic StudiesDoctoral School of Finance and Banking CURRENCY SUBSTITUTION IN ROMANIA MSc Student: Ciprian Dascalu Supervisor: Professor Moisa Altar THEORETICAL BACKGROUND Definitions - Currency substitution - Currency substitutability Dollarisation or Currency Substitution Theoretical models: - cash-in-advance models - transaction-costs models - ad-hoc models EMPIRICAL BACKGROUND Money demand functions for domestic and foreign currency are part of a sequential portfolio balance model; Two-period portfolio balance model; Models dealing with representative agent dynamic optimization problem; Money demand models including ratchet effect to account for hysteresis; Pros and Cons of currency substitution DEPENDENT VARIBLES Total stock of money in domestic currency (M_ROL1); The total stock of domestic money in banking system (M_ROL2), since there is no reliable data on foreign currency in circulation; The ratio of foreign currency deposits and brad money (CS1); The proportion of foreign deposits in total term deposits (CS2), considering that foreign currency deposits are primarily hold for store of value proposes; The ratio between domestic and foreign currency (CS3) to inspect the substitution between domestic and foreign currency deposits. All dependent variables are in logarithms. EXPLANATORY VARIABLES A scale variable, the industrial production (IPI), in logarithm; The own return (marginal) of domestic money, the deposit interest rate for non-banking clients (DR); The opportunity cost of holding money, the return on treasury bills (TBR); The inflation rate since real assets represent an alternative to money holding (INFLATION); Exchange rate depreciation against a basket comprised of (60% EURO and 40% USD) (D_BASKET) as the relative cost of holding domestic money instead of foreign currency; The past peak values of the exchange rate (R_BASKET) and the past peak values of currency substitution ratios (R_CS), to account for the ratchet