Sustituci 3n de Activos en Bolivia

The paper presents empirical evidence regarding asset substitution in Bolivia in the 1990-2002 period. Using an ARCH-M/TARCH specifica-tion, the exchange rate depreciation is modeled in a crawling-peg re-gime with a real exchange rate target. The model is also used to esti-mate a proxy for the depreciation risk. Real interest rate differentials between dollar and time deposits denominated in domestic currency, expected currency depreciation and the depreciation risk are found to be statistically significant determinants of asset substitution. However, their explanatory power is very low, compared to that obtained for the variable used to capture inertia. This suggests the presence of the "peso problem" in the Bolivian economy.