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Currency Substitution in Laos
Author(s) -
Xaiyavong Inthiphone,
Toyoda Toshihisa
Publication year - 2016
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/asej.12085
Subject(s) - currency substitution , economics , cointegration , currency , ratchet effect , distributed lag , monetary economics , order (exchange) , estimation , interest rate , substitution (logic) , econometrics , foreign exchange risk , ratchet , finance , management , computer science , chaotic , programming language
This study investigates the determinants of currency substitution in Laos based on the function of money demand. The empirical model is estimated using the autoregressive distributed lag approach to cointegration for the period 1993–2012. Our estimation results indicate that the interest rate differential is a significant currency substitution determinant in the Laos economy. Moreover, there is evidence supporting the existence of a ratchet effect in the currency allocation of deposits, implying that particularly strong policies should be pursued over an extended period of time in order to convince depositors to switch back to kip‐denominated assets.