Network Externalities and Dollarization Hysteresis: The Case of Russia

36 Pages Posted: 29 Jan 2006

See all articles by Nienke Oomes

Nienke Oomes

International Monetary Fund (IMF)

Date Written: May 2003

Abstract

Dollarization in Russia increased rapidly during the early 1990s, but failed to come down in the second half of the 1990s in spite of exchange rate stabilization. To explain this dollarization hysteresis, this paper develops a model in which network externalities in the demand for currency can generate multiple stable steady states for the dollarization ratio. The model is estimated using a new source of data on dollar currency holdings in Russia. On the basis of these estimates, which confirm the existence of network externalities, the paper discusses several policies that could result in a permanent decrease in dollarization.

Keywords: dollarization, currency substitution, ratchet effect, network externalities, Russia

JEL Classification: E41, F31

Suggested Citation

Oomes, Nienke, Network Externalities and Dollarization Hysteresis: The Case of Russia (May 2003). IMF Working Paper No. 03/96, Available at SSRN: https://ssrn.com/abstract=879172

Nienke Oomes (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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