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Endogenous Multiple Currencies

  • Martin, Antoine

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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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

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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:1:p:245-262
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Matsui, Akihiko, 1998. "Strong Currency and Weak Currency," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 305-333, December.
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  18. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Scholarly Articles 3445091, Harvard University Department of Economics.
  19. Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416.
  20. 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.
  21. Zhou, Ruilin, 1997. "Currency Exchange in a Random Search Model," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 289-310, April.
  22. 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.
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