The Impact of Economic Instability on the Unofficial Dollarization in Iran's Economy

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ESKANDARI SABZI SIMA; Farzinvash Asadolah; HOJABR KIANI KAMBIZ; SHAHRESTANI HAMID

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Title

The Impact of Economic Instability on the Unofficial Dollarization in Iran's Economy

Author(s)

ESKANDARI SABZI SIMA | Farzinvash Asadolah | HOJABR KIANI KAMBIZ | SHAHRESTANI HAMID | Issue Writer Certificate

Keywords

Money DemandQ2

DollarizationQ3

Currency SubstitutionQ2

Economic InstabilityQ1

Abstract

Economic Instability affects the domestic money that economic agents are willing to hold. For example in an uncertain inflationary environment, they prefer to less demand for money and use those asset which has less risk of maintenance, such as foreign currency and foreign assets. The use of foreign currency as a store of value is "Dollarization". This study examines the impact of Economic Instability on the unofficial Dollarization in Iran. For this purpose, we estimate the degree of Dollarization by Kamin and Ericsson (2003) and El-Erian (1988) method, then obtain a composite macroEconomic Instability index with the consumer price index, exchange rate, stock of international reserves, interest rate and budget deficit, then examine by using a vector auto regression model over the period of 1979 to 2014. The results indicate that Economic Instability affects Dollarization positively. The impulse response function shows that a one-standard error shock in instability increases Dollarization at first, and gradually reduced. The results of variance decomposition also show that in long term instability index can explain fluctuation of the Dollarization.

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APA: Copy

ESKANDARI SABZI, SIMA, Farzinvash, Asadolah, HOJABR KIANI, KAMBIZ, & SHAHRESTANI, HAMID. (2018). The Impact of Economic Instability on the Unofficial Dollarization in Iran's Economy. JOURNAL OF ECONOMIC GROWTH AND DEVELOPMENT RESEARCH, 8(30 ), 101-116. SID. https://sid.ir/paper/192253/en

Vancouver: Copy

ESKANDARI SABZI SIMA, Farzinvash Asadolah, HOJABR KIANI KAMBIZ, SHAHRESTANI HAMID. The Impact of Economic Instability on the Unofficial Dollarization in Iran's Economy. JOURNAL OF ECONOMIC GROWTH AND DEVELOPMENT RESEARCH[Internet]. 2018;8(30 ):101-116. Available from: https://sid.ir/paper/192253/en

IEEE: Copy

SIMA ESKANDARI SABZI, Asadolah Farzinvash, KAMBIZ HOJABR KIANI, and HAMID SHAHRESTANI, “The Impact of Economic Instability on the Unofficial Dollarization in Iran's Economy,” JOURNAL OF ECONOMIC GROWTH AND DEVELOPMENT RESEARCH, vol. 8, no. 30 , pp. 101–116, 2018, [Online]. Available: https://sid.ir/paper/192253/en

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