<abstract xmlns="http://www.w3.org/1999/xhtml"><p>Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it is often in the focus of scientists and experts. In this paper, we analyze the importance of euroization determinants in Serbia and neighboring countries - Albania, Bosnia and Herzegovina, FYR Macedonia, Romania and Croatia for the period 2003-2014. We examine the impact of domestic inflation, nominal exchange rate of the domestic currency against the euro, interest rate spread on domestic and foreign currency, foreign currency inflow in the form of foreign direct investments and exports, as well as the euroization of banks’financial resources on the degree of loan euroization. The results obtained by multiple regression panel methods confirm the statistical significance and assumed direction of the influence of all analyzed variables except inflation and current account balance.</p></abstract>

Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it is often in the focus of scientists and experts. In this paper, we analyze the importance of euroization determinants in Serbia and neighboring countries - Albania, Bosnia and Herzegovina, FYR Macedonia, Romania and Croatia for the period 2003-2014. We examine the impact of domestic inflation, nominal exchange rate of the domestic currency against the euro, interest rate spread on domestic and foreign currency, foreign currency inflow in the form of foreign direct investments and exports, as well as the euroization of banks’financial resources on the degree of loan euroization. The results obtained by multiple regression panel methods confirm the statistical significance and assumed direction of the influence of all analyzed variables except inflation and current account balance.

Determinants of Currency Substitution in Southeast European Countries

National bank of Serbia, Belgrade, Serbia

Faculty of Economics, University of Niš, Serbia

Institute of Economic Sciences, Belgrade, Serbia

Economic Themes

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

{"article-title":"Determinants of Currency Substitution in Southeast European Countries"}

Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it...

Determinants of Currency Substitution in Southeast European Countries

Published Online: Apr 15, 2016

Page range: 162 - 184

Received: Apr 28, 2015

Accepted: Jun 26, 2015

DOI: https://doi.org/10.1515/ethemes-2015-0010

Keywords
currency substitution, financial vulnerability, inflation, domestic currency depreciation, capital inflow

© 2016

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Determinants of Currency Substitution in Southeast European Countries

Published Online: Apr 15, 2016

Page range: 162 - 184

Received: Apr 28, 2015

Accepted: Jun 26, 2015

DOI: https://doi.org/10.1515/ethemes-2015-0010

Keywordscurrency substitution, financial vulnerability, inflation, domestic currency depreciation, capital inflow

© 2016

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
currency substitution, financial vulnerability, inflation, domestic currency depreciation, capital inflow