A Cross-Country Panel Analysis of Currency Substitution and Trade.
Attention that has been directed toward the effect of trade on foreigner's holdings of domestic currency comes exclusively from time-series evidence. Here we extend a model of currency substitution that incorporates a trade motive for foreigners to hold domestic currency. It uses time-series and cross-sectional information for a panel of 17 industrialized countries testing two-way fixed-effects models against pooled and random-effects alternatives. The cross-sectional information is significant, revealing that pooling of data could result in misleading inferences, since country-specific effects, regional group effects, and distance are all important determinants of domestic currency holding by foreigners. Copyright 2000 by Oxford University Press.
Year of publication: |
2000
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Authors: | Milner, Chris ; Mizen, Paul ; Pentecost, Eric |
Published in: |
Economic Inquiry. - Western Economic Association International - WEAI. - Vol. 38.2000, 2, p. 206-17
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Publisher: |
Western Economic Association International - WEAI |
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