Convertibility Risk: The Precautionary Demand for Foreign Currency in a Crisis Stabley W. Black

ISBN: 9786613820310

Published: December 1st 2001

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31 pages


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Convertibility Risk: The Precautionary Demand for Foreign Currency in a Crisis  by  Stabley W. Black

Convertibility Risk: The Precautionary Demand for Foreign Currency in a Crisis by Stabley W. Black
December 1st 2001 | ebook | PDF, EPUB, FB2, DjVu, AUDIO, mp3, ZIP | 31 pages | ISBN: 9786613820310 | 8.11 Mb

This paper presents theoretical work linking money demand to the perceptions of households about the risk that domestic currency may become inconvertible or that it may be devalued. An empirical investigation of the size of this effect is carried outMoreThis paper presents theoretical work linking money demand to the perceptions of households about the risk that domestic currency may become inconvertible or that it may be devalued. An empirical investigation of the size of this effect is carried out using both cross section data and then monthly data for Korea to estimate an augmented demand for money equation.

It is found that the fear of inconvertibility arising from the 1997 Korean currency crisis may have caused broad money demand to fall by 4-5 percentage points, equivalent to the loss of reserves of $6-72 billion (or about 30 percent of reserves as measured at end-November 1997).



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