IDEAS home Printed from https://ideas.repec.org/p/cep/cepdps/dp0322.html
   My bibliography  Save this paper

International Trade and Currency Exchange

Author

Listed:
  • H Rey

Abstract

On the international scene, away from national legal rules, the use of different currencies is largely due to the process of the ''Invisible Hand''. How do currencies flow when their circulations are not tightly guided and canalised? The paper develops a three-country model of the world economy and links real trade patterns with currency exchange structures in a general equilibrium framework which includes transaction costs on foreign exchange markets. It is shown that there are in general multiple equilibrium structures of currency exchange for a given underlying real trade pattern. The existence conditions of these different equilibria are characterized, using the trade links between countries as the key parameters. An evolutionary approach to equilibrium selection is used to explain the rise and fall of international currencies as the trade flows between the three economies are altered. Finally, repercussions of the choice of a currency exchange structure on welfare are analysed.

Suggested Citation

  • H Rey, 1997. "International Trade and Currency Exchange," CEP Discussion Papers dp0322, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0322
    as

    Download full text from publisher

    File URL: http://cep.lse.ac.uk/pubs/download/DP0322.pdf
    Download Restriction: no

    Other versions of this item:

    More about this item

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0322. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.