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This paper investigates and compares currency substitution between the currencies of Central and Eastern European (CEE) countries and the euro. In addition, we develop a model with microeconomic foundations, which identifies difference between currency substitution and money demand sensitivity to exchange rate variations. More precisely, we posit that currency substitution relates to money demand sensitivity to the interest rate spread between the CEE countries and the euro area. Moreover, we show how the exchange rate affects money demand, even absent a currency substitution effect. This model applies to any country where an international currency offers liquidity services to domestic agents. The model generates empirical tests of long-run money demand using two complementary cointegrating equations. The opportunity cost of holding the money and the scale variable, either household consumption or output, explain the long-run money demand in CEE countries.
This review is about the convenience, the benefits, as well as the destructive capacities of money. It deals with various aspects of money creation, with its value, and its appropriation. All sorts of money tend to get corrupted by eventually creatin
We show that an economic system populated by multiple agents generates an equilibrium distribution in the form of multiple scaling laws of conditional PDFs, which are sufficient for characterizing the probability distribution. The existence of the do
We argue that the present crisis and stalling economy continuing since 2007 are rooted in the delusionary belief in policies based on a perpetual money machine type of thinking. We document strong evidence that, since the early 1980s, consumption has
In the current era of worldwide stock market interdependencies, the global financial village has become increasingly vulnerable to systemic collapse. The recent global financial crisis has highlighted the necessity of understanding and quantifying in
In this paper, we reveal the depreciation mechanism of representative money (banknotes) from the perspective of logistics warehousing costs. Although it has long been the dream of economists to stabilize the buying power of the monetary units, the go