Currency substitution and the new divisia monetary aggregates : the U. S. case
AbstractThe purpose of this paper is to examine the extent to which the behavior of aggregate money holdings is influenced by foreign exchange considerations, an influence that has been labeled as currency substitution. Knowledge of the extent to which monies of different countries can substitute for each other is important for the design and implementation of monetary policy. However, existing empirical analyses of currency substitutions rest on official estimates of money holdings which imply an infinite elasticity of substitution between different monetary assets. Analyses of economic monetary aggregates do not impose the assumption of infinite elasticity of substitution, but no foreign exchange considerations are allowed. This paper combines both approaches into a unified explanation of money demand behavior.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 257.
Date of creation: 1985
Date of revision:
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