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Endogenous Currency Substitution, Inflationary Finance, and Welfare

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Chang, Roberto

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Abstract

In some countries a foreign currency has replaced the domestic one to perform the functions of money. This phenomenon is known as currency substitution. This paper explores the relationship between currency substitution and inflationary finance in an overlapping generations model in which currency substitution is an endogenous equilibrium outcome. The author describes when currency substitution may emerge and shows that it may be a purely expectational phenomenon. He uses the model to discuss the welfare effects of inflation and the effects of policies that deal directly with currency substitution CS. Copyright 1994 by Ohio State University Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 26 (1994)
Issue (Month): 4 (November)
Pages: 903-16
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Handle: RePEc:mcb:jmoncb:v:26:y:1994:i:4:p:903-16

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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References listed on IDEAS
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  1. Brock, William A. & Scheinkman, J. A., 1979. "Some Remarks on Monetary Policy in an Overlapping Generations Model," Working Papers 246, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 North American Summer Meetings 456, Econometric Society. [Downloadable!]
    Other versions:
  2. Gabriele Camera & Ben Craig & Christopher J. Waller, 2003. "Currency competition in a fundamental model of money," Working Paper 0311, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  3. Gustavo Suárez, 1999. "Tecnología De Transacciones Endógena Y Los Costos De La Inflación," BORRADORES DE ECONOMIA 003545, BANCO DE LA REPÚBLICA. [Downloadable!]
  4. Kyriakos C. Neanidis & Christos S. Savva, 2006. "The Effects of Uncertainty on Currency Substitution and Inflation: Evidence from Emerging Economies," The School of Economics Discussion Paper Series 0609, Economics, The University of Manchester. [Downloadable!]
    Other versions:
  5. Oscar J. Arce, 2006. "Speculative Hyperinflations: When Can We Rule Them Out?," Computing in Economics and Finance 2006 376, Society for Computational Economics. [Downloadable!]
  6. Yinusa, D. Olalekan, 2009. "Macroeconomic Fluctuations and Deposit Dollarization in Sub-Saharan Africa: Evidence from Panel Data," MPRA Paper 16259, University Library of Munich, Germany, revised 2009. [Downloadable!]
  7. Miguel Lebre de Freitas, 2003. "The dynamics of inflation and currency substitution in a small open economy," Working Papers de Economia (Economics Working Papers) 02, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro, revised Aug 2003. [Downloadable!]
    Other versions:
  8. Antoine Martin, 2002. "Endogenous multiple currencies," Research Working Paper RWP 02-03, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  9. Miguel Lebre de Freitas, 2004. "Currency Substitution, portfolio Diversification and Money Demand," NIPE Working Papers 9/2004, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
  10. Óscar J. Arce, 2006. "Speculative hyperinflations: when can we rule them out?," Banco de España Working Papers 0607, Banco de España. [Downloadable!]
  11. Roberto Chang, 2000. "Dollarization: a scorecard," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 1-12. [Downloadable!]
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