Currency substitution, portfolio diversification, and money demand

$48.00 plus tax (Refund Policy)

Download / Buy Article:



We extend the Thomas (1985) dynamic optimizing model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case currency substitution decisions and asset substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six Latin-American countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile.

Keywords: E41; F41; G11

Document Type: Research Article


Affiliations: 1: Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro and NIPE 2: Escola de Economia e Gestão, Universidade do Minho and NIPE

Publication date: August 1, 2006

Related content



Share Content

Access Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content
Cookie Policy
Cookie Policy
ingentaconnect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more