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Title: |
Substitution among Currencies: A Preferred
Habitat Hypothesis |
| Author: |
Handa, Jagdish |
| Author
Affiliation: |
McGill U and U
Nairobi |
| Source: |
International Economic Journal, Summer 1988, v. 2, no. 2, pp. 41-61 |
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Publication Date: |
Summer 1988 |
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Abstract: |
This paper embeds the theory of currency
substitution in the theory of the transactions demand for money. It
argues that the domestic currency, as the most convenient and preferred
domestic medium of payments, is the preferred habitat for transactions
balances. With foreign currencies acting only as liquid stores of value,
the degree of currency substitution is further reduced by the presence
of short-term bonds under a yield dominance hypothesis. The empirical
evidence on Canadian money demand function supports our analytical
findings: the degree of substitution between the Canadian and U.S.
currencies for Canadian residents is virtually non-existent. |
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