This paper presents new evidence of currency substitution using the two-step estimator of cointegrated systems developed by Engle and Granger (1987). We estimate and find cointegration among variables suggested by the money-services model of currency substitution. Following Engle et al. (1989), we estimate an error correction model for each of five countries, allowing isolation of long-term from short-term influences on the foreign demand for US demand deposits. Our results suggest that currency substitution is a potentially significant phenomenon influencing long-term monetary policy independence.

The era of deregulation in consumer financial services has focused atten? tion on the effects for commercial banks and, recently, the solvency of savings and loan associations. Often neglected in the financial press are credit unions: not-for-profit financial cooperatives which, in most cases, experienced more dramatic regulatory changes. A major reason for this apparent lack of interest in credit unions is not because of declining market share or hindered asset growth ? much the opposite is the case ? but rather because of the lack of a distinct proprietor. Credit unions, under the law, are nonstock private corporations providing general financial services to a distinct class of people subject to association by a bond/1 While credit unions today may provide a full menu of financial services similar to that of commercial banks, they remain different. This difference is due to the cooperative nature of the credit union as imbedded in the concept of a common bond. Notably, the concept of a financial cooperative is inherently more complex than that of other private stock-issuing intermediaries in that regulators and others must examine the behavior among the members of the cooperative as well as the relationship between the cooperative and the market as a whole. Regulators and pre? vious researchers have largely concentrated on the latter at the expense of the former. A central thesis of this paper is that regulators, by systematically ignoring the rich behavioral dynamics of the relationship among members in the financial cooperative, may pursue actions that will hamper the social utility

AbstractDeposit interest rate deregulation and financial service innovation have led to dramatic changes in large banks' deposit composition. This paper presentes a statistical cost analysis of changes in unit costs faced by banks under comprehensive financial deregulation. The results of this paper show that the unit cost of retail deposits‐demand and passbook savings deposits‐has increased relative to wholesale deposits‐federal funds, certificates of deposit, and money market time deposits. We show, contrary to conventional wisdom, that changes in unit costs have been caused by processing costs rather than by interest expenses.

The purpose of this paper is to analyse the effect of deregulation and enhanced competition on the costs and performance of large credit unions. Using a sample of large credit unions over the period 1979 through to 1985, we find no evidence that credit unions' average costs have risen, nor do we find evidence that credit unions have suffered adverse changes in operating margins. Large credit unions not only compete with other depository institutions, but appear to have responded well in the newly competitive environment.

This paper examines the relationship between the budget deficit and the trade deficit in the United States by presenting new evidence on the impact effects of debt disturbances on the exchange rate. Based upon estimates of a general two-country portfolio-balance model, we find evidence that increases in the U.S. debt stock have caused an appreciation in the U.S. dollar relative to the German mark and the Canadian dollar over the period 1973II–1987II. Correspondingly, this paper presents evidence on the linkage between the budget deficit and the trade deficit arising through the exchange rate.