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A dynamic monetary model with costly foreign currency

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  • Marcelo Bianconi

Abstract

I present a dynamic general equilibrium monetary model with domestic and foreign currencies and a traded bond where there is an adjustment cost to switch into foreign currency. The focus is on the short versus long run trade-offs and transitional dynamics of domestic and foreign monetary disturbances as a function of attributes of currencies in utility. The main finding is that short and long run trade-offs and transitional dynamics together with the implied hysteresis property of the equilibrium are critical determinants of the qualitative results of domestic and foreign monetary disturbances in this class of model.

Suggested Citation

  • Marcelo Bianconi, 1999. "A dynamic monetary model with costly foreign currency," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(4), pages 321-342.
    • Handle: RePEc:taf:jitecd:v:8:y:1999:i:4:p:321-342
    DOI: 10.1080/09638199900000020
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    References listed on IDEAS

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    1. Michael P. Dooley & Kenneth M. Kletzer, 1994. "Capital flight, external debt, and domestic policies," Economic Review, Federal Reserve Bank of San Francisco, pages 29-37.
    2. Jonathan Eaton, 1994. "Cross-Border Banking," NBER Working Papers 4686, National Bureau of Economic Research, Inc.
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