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International Currency

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Author Info

  • Randall Wright

    (University of Pennsylvania)

  • Alberto Trejos

    (INCAE)

Abstract

We develop a two-country, two-currency, search-theoretic model of monetary exchange, extending previous such models by endogenizing prices using bargaining theory. We analyze features of the environment that make it more likely that a given money circulates internationally. We show the value of a given currency rises if it circulates abroad, and falls if foreign money circulates locally. Also, we show that international monies have more value at home than abroad. These results help to explain the otherwise anomalous observation that the US dollar is an outlier in the empirical relationship between income and PPP deflators.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1020&context=bejm
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): advances.1 (2001)
Issue (Month): 1 ()
Pages: 3

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Handle: RePEc:bpj:bejmac:v:advances.1:y:2001:i:1:n:3

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Web page: http://www.degruyter.com

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Web: http://www.degruyter.com/view/j/bejm

Related research

Keywords: money; search; international;

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Citations

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Cited by:
  1. Camera, Gabriele & Winkler, Johannes, 2003. "International monetary trade and the law of one price," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1531-1553, October.
  2. Prakash Kannan, 2007. "On the Welfare Benefits of an International Currency," IMF Working Papers 07/49, International Monetary Fund.
  3. Li, Yiting & Matsui, Akihiko, 2009. "A theory of international currency: Competition and discipline," Journal of the Japanese and International Economies, Elsevier, vol. 23(4), pages 407-426, December.
  4. Marchesiani, Alessandro & Senesi, Pietro, 2007. "Asymmetric government transaction policies and currencies substitutability," Economics Letters, Elsevier, vol. 97(2), pages 105-110, November.
  5. Benjamin Eden, 2006. "International Seigniorage Payments," Vanderbilt University Department of Economics Working Papers 0622, Vanderbilt University Department of Economics.
  6. Michael B. Devereux & Shouyong Shi, 2008. "Vehicle currency," Globalization and Monetary Policy Institute Working Paper 10, Federal Reserve Bank of Dallas.
  7. Craig, Ben & Waller, C.J.Christopher J., 2004. "Dollarization and currency exchange," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 671-689, May.
  8. Dong, Mei & Jiang, Janet Hua, 2010. "One or two monies?," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 439-450, May.
  9. Zhang, Cathy, 2013. "An Information-Based Theory of International Currency," MPRA Paper 42114, University Library of Munich, Germany.
  10. Lotz, Sebastien, 2004. "Introducing a new currency: Government policy and prices," European Economic Review, Elsevier, vol. 48(5), pages 959-982, October.

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