Currency Substitution and Financial Innovation
This paper explores the domestic effects as well as the international transmission of financial innovation. The analysis is carried out in a cash-in-advance model with two currencies and tw o goods in which income velocity is variable because of inventory-type considerations in the determination of the demand for money. The discussion emphasizes the role of currency substitution, which occur s through the interaction between the two monies in affecting the tota l amount of time devoted to transaction activities. The role of cross-border transfers of seigniorage in determining the general equilibrium effects of financial innovation is discussed. Copyright 1993 by Ohio State University Press.
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Volume (Year): 25 (1993)
Issue (Month): 1 (February)
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