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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.

Foreign Exchange --- Investments: General --- Money and Monetary Policy --- Demand for Money --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Investment --- Capital --- Intangible Capital --- Capacity --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary economics --- Macroeconomics --- Currency --- Foreign exchange --- Dollarization --- Currencies --- Depreciation --- Exchange rates --- Monetary base --- Monetary policy --- Money --- National accounts --- Saving and investment --- Money supply --- Russian Federation

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What determines the currency to which countries peg or "anchor" their exchange rate? Data for over 100 countries between 1980 and 1998 reveal that trade network externalities are a key determinant. This implies that anchor currency choice may well be suboptimal in that certain currencies, e.g., the U.S. dollar, could be oversubscribed. It also implies that changes in anchor choices by a small number of countries can have large and rapid effects on the international monetary system. Other factors found to be related to anchor choice include the symmetry of output shocks and the currency denomination of liabilities.

Foreign exchange rates. --- Foreign exchange administration. --- Coinage, International. --- International coinage --- International money --- Money, International --- Exchange rates --- Fixed exchange rates --- Flexible exchange rates --- Floating exchange rates --- Fluctuating exchange rates --- Foreign exchange --- Rates of exchange --- Rates --- Currency question --- Monetary unions --- Money --- Exports and Imports --- Foreign Exchange --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financial Aspects of Economic Integration --- Monetary economics --- Currency --- International economics --- Reserve currencies --- Currencies --- Exchange rate arrangements --- United States

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This paper estimates the output gap in Russia using a utilization-adjusted production function approach, which we argue is preferable to traditional output gap methods. The approach amounts to (1) using available surveys to estimate the "natural rates" of capacity and labor utilization above which inflation begins to accelerate; (2) estimating a production function with utilization-adjusted capital and labor inputs; and (3) defining potential output as the level of output obtained when both capital and labor are at their estimated natural rates. The results suggest that the output gap in Russia was negative between 1999 and 2003, but may have recently become positive, thus contributing to inflationary pressures.

Electronic books. -- local. --- Inflation (Finance) -- Russia -- Econometric models. --- Input-output analysis -- Russia -- Econometric models. --- Phillips curve -- Econometric models. --- Finance --- Business & Economics --- Money --- Inflation (Finance) --- Input-output analysis --- Phillips curve --- Econometric models. --- Interindustry economics --- Unemployment --- Economics, Mathematical --- National income --- Input-output tables --- Natural rate of unemployment --- Mathematical models --- Effect of inflation on --- Accounting --- Inflation --- Labor --- Macroeconomics --- Production and Operations Management --- Macroeconomics: Production --- Labor Economics Policies --- Price Level --- Deflation --- Labor Economics: General --- Labour --- income economics --- Capacity utilization --- Output gap --- Labor policy --- Industrial capacity --- Production --- Economic theory --- Prices --- Labor economics --- Russian Federation

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In this paper, we examine the IMF's role in maintaining the access of emerging market economies to international capital markets. We find evidence that both macroeconomic aggregates and capital flows improve following the adoption of an IMF-supported program, although they may initially deteriorate somewhat. Consistent with theoretical predictions and earlier empirical findings, we find that IMF-supported programs are most successful in improving capital flows to countries with bad, but not very bad fundamentals. In such countries, IMF-supported programs are also associated with improvements in the fundamentals themselves.

Economic development. --- Development, Economic --- Economic growth --- Growth, Economic --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- International Monetary Fund. --- Internationaal monetair fonds --- International monetary fund --- Exports and Imports --- Finance: General --- International Investment --- Long-term Capital Movements --- International Monetary Arrangements and Institutions --- General Financial Markets: General (includes Measurement and Data) --- Current Account Adjustment --- Short-term Capital Movements --- International economics --- Finance --- Capital flows --- International capital markets --- Emerging and frontier financial markets --- Current account --- Current account deficits --- Capital movements --- Balance of payments --- Capital market --- Financial services industry

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Money demand in dollarized economies often appears to be highly unstable, making it difficult to forecast and control inflation. In this paper, we show that a stable money demand function for Russia can be found for "effective broad money," which includes an estimate of foreign cash holdings. Moreover, we find that an excess supply of effective broad money is inflationary, while other excess money measures are not, and that effective broad money growth has the strongest and most persistent effect on short-run inflation.

Currency substitution -- Russia (Federation). --- Demand for money -- Russia (Federation). --- Electronic books. -- local. --- Inflation (Finance) -- Russia (Federation). --- Inflation --- Money and Monetary Policy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Price Level --- Deflation --- Demand for Money --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary economics --- Macroeconomics --- Monetary base --- Demand for money --- Currencies --- Monetary aggregates --- Money supply --- Money --- Prices --- Russian Federation --- Inflation (Finance) --- Currency substitution