Convertibility risk: the precautionary demand for foreign currency in a crisis

Springer Science and Business Media LLC - Tập 2 - Trang 141-165 - 2005
Stanley W. Black1, Charis Christofides2, Alex Mourmouras3
1Department of Economics, University of North Carolina, Chapel Hill, USA
2Room HQ1-13-215, Office of the Executive Directors, International Monetary Fund, Washington, USA
3Room HQ2-4-781, IMF Institute, International Monetary Fund, Washington, USA

Tóm tắt

This paper presents theoretical work linking money demand to the perceptions of households about the risk that domestic currency may become inconvertible or that it may be devalued. An empirical investigation of the size of this effect is carried out using monthly data for Korea to estimate an augmented demand-for-money equation. It is found that the fear of inconvertibility arising from the 1997 Korean currency crisis may have caused broad money demand to fall by 4–5% points,equivalent to the loss of reserves of $6–7.5 billion (or about 30% of reserves as measured at end-November 1997).

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