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International Currency

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Author Info

  • Wright Randall

    ()
    (University of Pennsylvania)

  • Trejos Alberto

    ()
    (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.degruyter.com/view/j/bejm.2001.1.issue-1/bejm.2001.1.1.1020/bejm.2001.1.1.1020.xml?format=INT
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Bibliographic Info

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

Volume (Year): 1 (2001)
Issue (Month): 1 (April)
Pages: 1-17

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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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Citations

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Cited by:
  1. 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.
  2. Craig, Ben & Waller, C.J.Christopher J., 2004. "Dollarization and currency exchange," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 671-689, May.
  3. Marchesiani, Alessandro & Senesi, Pietro, 2007. "Asymmetric government transaction policies and currencies substitutability," Economics Letters, Elsevier, vol. 97(2), pages 105-110, November.
  4. Prakash Kannan, 2007. "On the Welfare Benefits of An International Currency," IMF Working Papers 07/49, International Monetary Fund.
  5. Lotz, Sebastien, 2004. "Introducing a new currency: Government policy and prices," European Economic Review, Elsevier, vol. 48(5), pages 959-982, October.
  6. Michael B. Devereux & Shouyong Shi, 2008. "Vehicle Currency," Working Papers tecipa-315, University of Toronto, Department of Economics.
    • Michael B. Devereux & Shouyong Shi, 2013. "Vehicle Currency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 97-133, 02.
  7. Benjamin Eden, 2006. "International Seigniorage Payments," Vanderbilt University Department of Economics Working Papers 0622, Vanderbilt University Department of Economics.
  8. 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.
  9. Dong, Mei & Jiang, Janet Hua, 2010. "One or two monies?," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 439-450, May.
  10. Zhang, Cathy, 2013. "An Information-Based Theory of International Currency," MPRA Paper 42114, University Library of Munich, Germany.

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