Title: The causality of dollarisation, interest rate and exchange rate: evidence from Laos

Authors: Phouphet Kyophilavong; Aviral Kumar Tiwari; Byoungki Kim; Saysamone Phoyduangsy

Addresses: Faculty of Economics and Business Management, National University of Laos, Vientiane, Lao PDR, Laos ' IBS Hyderabad, A Constituent of IFHE (Deemed to be) University, Dontanpalli Village, Shankerpalli Road, Hyderabad, 501203 Telangana, India ' Faculty of Economics, Graduate School, Shiga University, Japan ' Faculty of Economics and Business Management, National University of Laosm Vientiane, Lao PDR, Laos

Abstract: In this paper, we examine the causality among the dollarisation, the interest rate differential, and the exchange rate risk in Laos. We use an ARDL approach to cointegration and a Granger causality test in a VECM for this purpose. We find that no long-term causality exists from the interest rate differential and the exchange rate risk to the dollarisation. But, we do find a unidirectional causality from the real interest rate differential to the dollarisation and the exchange rate risk short term. This finding implies that the interest rate differential reduces the dollarisation in the short term only.

Keywords: dollarisation; ARDL approach; Granger causality test; Laos.

DOI: 10.1504/GBER.2018.088486

Global Business and Economics Review, 2018 Vol.20 No.1, pp.115 - 125

Received: 03 Dec 2015
Accepted: 27 May 2016
Published online: 11 Dec 2017 *

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