Abstract
We develop a currency substitution model to explain the 400 percent depreciation of the free market exchange rate of the Venezuelan bolivar. Applying duality theory, we find that currency sunstitution is necessary condidtion for such a depreciation. Using annual data for 1960-1980, we estimate the elasticity of currency subsitution for Veneuela, and we find that this elacticity is signnificantly greater than one.
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