This paper investigates the long-run and short-run relationship between
deposit euroization in twelve European post-transition economies and two
determinants of deposit euroization that are under the influence of monetary
policy: the exchange rate and the interest rate differential. The link
between deposit euroization, exchange rates and interest rate differentials
is investigated using Johansen cointegration and error correction models for
each country separately. The results suggest that changes in both monetary
drivers have significant effects on deposit euroization and are therefore
important for explaining and fighting deposit euroization. Differences
between exchange rate regimes, fixed and managed vs. floating, seem to matter
for deposit euroization.</jats:p
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