TY - JOUR
T1 - The effects of foreign exchange risk and return on the demand for domestic balances
AU - Zilberfarb, Ben Zion
PY - 1988/7
Y1 - 1988/7
N2 - This paper provides an empirical evidence regarding the effects of foreign exchange risk and return on the demand for domestic balances. Unlike earlier studies which examine only one effect and thus may have been subjected to a misspecification problem, this paper includes both foreign exchange risk and return as explanatory variables in the money demand equation. The results lend limited support to the hypothesis that foreign exchange risk negatively affects money demand, and strongly indicate that foreign exchange return has a negative effect on the demand for domestic balances. Thus currency substitution seems to be relevant not just in developed economies, but in developing economies subject to foreign exchange controls, as well.
AB - This paper provides an empirical evidence regarding the effects of foreign exchange risk and return on the demand for domestic balances. Unlike earlier studies which examine only one effect and thus may have been subjected to a misspecification problem, this paper includes both foreign exchange risk and return as explanatory variables in the money demand equation. The results lend limited support to the hypothesis that foreign exchange risk negatively affects money demand, and strongly indicate that foreign exchange return has a negative effect on the demand for domestic balances. Thus currency substitution seems to be relevant not just in developed economies, but in developing economies subject to foreign exchange controls, as well.
UR - http://www.scopus.com/inward/record.url?scp=38249029526&partnerID=8YFLogxK
U2 - 10.1016/0014-2921(88)90240-1
DO - 10.1016/0014-2921(88)90240-1
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AN - SCOPUS:38249029526
SN - 0014-2921
VL - 32
SP - 1359
EP - 1368
JO - European Economic Review
JF - European Economic Review
IS - 6
ER -