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Endogenous Multiple Currencies

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Author Info
Martin, Antoine

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Abstract

In this paper I study a model in which households can decide which currency or currencies they will accept. I provide a simple set of assumptions that are sufficient to prevent the indeterminacy of the exchange rate in the sense of Kareken and Wallace (1981). In a two-country model, stable equilibria have either a single currency or national currencies. I also show currency substitution occurs as an endogenous response to high growth in the stock of a currency.

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File URL: http://dx.doi.org/10.1353/mcb.2006.0019
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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 1 (February)
Pages: 245-262
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:1:p:245-262

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

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  2. Zhou, Ruilin, 1997. "Currency Exchange in a Random Search Model," Review of Economic Studies, Blackwell Publishing, vol. 64(2), pages 289-310, April. [Downloadable!] (restricted)
  3. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359. [Downloadable!] (restricted)
  4. Russell Cooper & Hubert Kempf, 2000. "Designing Stabilization Policy in a Monetary Union," Boston University - Institute for Economic Development 99, Boston University, Institute for Economic Development. [Downloadable!]
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  5. Matsui, Akihiko, 1998. "Strong Currency and Weak Currency," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 305-333, December. [Downloadable!] (restricted)
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  6. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September. [Downloadable!] (restricted)
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  7. Chang, Roberto, 1994. "Endogenous Currency Substitution, Inflationary Finance, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 903-16, November. [Downloadable!] (restricted)
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  8. Boyer, Russell S. & Kingston, Geoffrey H., 1987. "Currency substitution under finance constraints," Journal of International Money and Finance, Elsevier, vol. 6(3), pages 235-250, September. [Downloadable!] (restricted)
  9. Stockman, Alan C, 1980. "A Theory of Exchange Rate Determination," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 673-98, August. [Downloadable!] (restricted)
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  10. Minford, Patrick, 1995. "Other people's money: Cash-in-advance microfoundations for optimal currency areas," Journal of International Money and Finance, Elsevier, vol. 14(3), pages 427-440, June. [Downloadable!] (restricted)
  11. Ireland, Peter N, 1994. "Money and Growth: An Alternative Approach," American Economic Review, American Economic Association, vol. 84(1), pages 47-65, March. [Downloadable!] (restricted)
  12. Ireland, Peter N., 1994. "Economic growth, financial evolution, and the long-run behavior of velocity," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 815-848. [Downloadable!] (restricted)
  13. Narayana Kocherlakota & Thomas Krueger, 1999. "A Signaling Model of Multiple Currencies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 231-244, January. [Downloadable!] (restricted)
  14. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May. [Downloadable!] (restricted)
  15. King, Robert G. & Wallace, Neil & Weber, Warren E., 1992. "Nonfundamental uncertainty and exchange rates," Journal of International Economics, Elsevier, vol. 32(1-2), pages 83-108, February. [Downloadable!] (restricted)
  16. Tandon, Ajay & Wang, Yong, 1999. "Inflationary Finance, Capital Controls, and Currency Substitution," Review of International Economics, Blackwell Publishing, vol. 7(4), pages 597-612, November.
  17. Schreft, Stacey L., 1992. "Welfare-improving credit controls," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 57-72, October. [Downloadable!] (restricted)
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  18. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 865-90, October. [Downloadable!] (restricted)
  19. Sibert, Anne & Liu, Lihong, 1998. "Government finance with currency substitution," Journal of International Economics, Elsevier, vol. 44(1), pages 155-172, February. [Downloadable!] (restricted)
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  20. Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416. [Downloadable!] (restricted)
  21. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Oxford University Press, vol. 18(2), pages 203-20, April.
  22. Fisher, Eric O'N., 1999. "On exchange rates and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 23(5-6), pages 851-872, April. [Downloadable!] (restricted)
  23. Scott Freeman & Finn E. Kydland, 2000. "Monetary Aggregates and Output," American Economic Review, American Economic Association, vol. 90(5), pages 1125-1135, December. [Downloadable!] (restricted)
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  24. Robert E. Lucas, Jr. & Nancy L. Stokey, 1987. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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