Title: Currency substitution and financial crisis: lesson from a southeast emerging market

Authors: Wahyu Ario Pratomo; Ari Warokka

Addresses: Faculty of Economics, Department of Economic Development, Universitas Sumatera Utara, Medan 20155, Indonesia ' Centro Internacional "Carlos V", Universidad Autonoma de Madrid, Madrid, 28049, Spain

Abstract: This study aims to examine the currency substitution phenomenon in a country when it has a high inflation. In the modern economic era, Indonesia has experienced two elevated inflation periods between 1997 and 2012, i.e., when the Asian financial crisis stormed Southeast Asian countries in 1997, and the global one that affected most countries in 2008. By using a currency substitution model and four variables of vector auto-regressive (VAR), this study tested the currency substitution and its potential interactions during the crisis period in Indonesia. The results reveal that the currency substitution phenomenon exists significantly in Indonesia.

Keywords: economic crisis; dollarisation; currency substitution; financial crisis; emerging markets; high inflation; Indonesia; VAR; vector auto-regressive.

DOI: 10.1504/JGBA.2016.074896

Journal for Global Business Advancement, 2016 Vol.9 No.1, pp.67 - 78

Available online: 22 Feb 2016 *

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