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      • Theses - Department of Economics
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      Currency substitution: a numerical dynamic programming approach

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      Author
      Volkan, Engin
      Advisor
      Başçı, Erdem
      Date
      1998
      Publisher
      Bilkent University
      Language
      English
      Type
      Thesis
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      Abstract
      This thesis conducts a theoretical study on currency substitution in an infinitelylived small open financially repressed economy which is subject to stochastic inflation shocks. For this purpose, a dynamic programming model is constructed under the assumption that purchasing power parity holds. The solution of the model through value function iteration shows that under high inflation, and financial repression, the inhibitants of an economy will demand foreign currency to the extend that it provides a better protection of their wealth against inflation.
      Keywords
      Currency substitution
      Bellman’s equation
      Value function iteration
      Cash-in-advance
      Transaction costs
      Permalink
      http://hdl.handle.net/11693/18434
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      • Dept. of Economics - Master's degree 291
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