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Network Externalities and Dollarization Hysteresis: The Case of Russia
Author:
Nienke Oomesnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2003: Issue 096
Language:
English
Publication Date:
01 May 2003
DOI:
https://doi.org/10.5089/9781451851939.001
ISBN:
9781451851939
ISSN:
1018-5941
Pages:
36
Keywords:
WP; foreign currency; dollarization ratio; depreciation rate; dollarization; currency substitution; ratchet effect; network externalities; Russia; dollarization hysteresis; currency dollarization; high-dollarization steady state; Currencies; Depreciation; Exchange rates; Monetary base
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Dollarization in Russia increased rapidly during the early 1990s, but failed to come down in the second half of the 1990s in spite of exchange rate stabilization. To explain this "dollarization hysteresis," this paper develops a model in which network externalities in the demand for currency can generate multiple stable steady states for the dollarization ratio. The model is estimated using a new source of data on dollar currency holdings in Russia. On the basis of these estimates, which confirm the existence of network externalities, the paper discusses several policies that could result in a permanent decrease in dollarization.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2003: Issue 096