Publication at Faculty of Social Sciences, Faculty of Mathematics and Physics, Centre for Economic Research and Graduate Education |
2012
Abstract
This paper studies dollarization using the implications of three versions of a money-in-utility function model. These versions accentuate the roles of the exchange rate, the interest rates on foreign and domestic currencies time deposits, and domestic and foreign inflation.
Monthly Georgian data for the period 1996-2007 are employed in the analysis. Findings indicate that the U.S. dollar is a strong substitute for the domestic currency and has a significant share in domestic liquidity services.
The historical dollarization is well explained by the exchange rate model.