The causality of dollarisation, interest rate and exchange rate: evidence from Laos
by Phouphet Kyophilavong; Aviral Kumar Tiwari; Byoungki Kim; Saysamone Phoyduangsy
Global Business and Economics Review (GBER), Vol. 20, No. 1, 2018

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.

Online publication date: Mon, 11-Dec-2017

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