Abstract
Previous empirical tests of McKinnon's indirect currency substitution (ICS) hypothesis based on macro reduced-form models yield ambiguous results because evidence cannot discriminate ICS from competing non-monetary models. This note suggests a structural model based on the money demand function. Preliminary evidence supports McKinnon's hypothesis for the Federal Republic of Germany, Switzerland, Canada, and the Netherlands, but not for the U.S.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have