Currency substitution in developing countries : theory and empirical analysis for Latin America and Eastern Europe

In the wake of the global liberalization of financial and currency markets in the 1970s and 1980s, currency substitution has given rise to increasing policy concern. In developing countries, this phenomenon mainly results from the flight out of the domestic currency as a reaction to macroeconomic and political instability. Knowledge of the currency substitution determinants as well as of its welfare and growth effects is a prerequisite for formulating adequate policy recommendations for the developing world. Considering the importance which a proper understanding of the currency substitution phenomenon has for the developement process of countries, the scope of this study encompasses a comprehensive theoretical and empirical assessment of its causes and consequences. The focus of the