Asset Substitution in Bolivia

Authors

  • Oscar Lora Banco Central de Bolivia

Keywords:

asset substitution, dollarization, exchange rate depreciation, peso problem, Bolivia

Abstract

The paper presents empirical evidence regarding asset substitution in Bolivia in the 1990-2002 period. Using an ARCH-M/TARCH specifica-tion, the exchange rate depreciation is modeled in a crawling-peg re-gime with a real exchange rate target. The model is also used to esti-mate a proxy for the depreciation risk. Real interest rate differentials between dollar and time deposits denominated in domestic currency, expected currency depreciation and the depreciation risk are found to be statistically significant determinants of asset substitution. However, their explanatory power is very low, compared to that obtained for the variable used to capture inertia. This suggests the presence of the "peso problem" in the Bolivian economy.

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References

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Published

2002-10-31

How to Cite

Lora, O. (2002). Asset Substitution in Bolivia. Economic Analysis Review, 17(2), 31–47. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/18

Issue

Vol. 17 No. 2 (2002)

Section

Articles

License

Copyright (c) 2002 Oscar Lora

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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