IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/22073.html

Losing grip? The Quantity Theory of Money under Currency Competition

Author

Listed:
  • Arifovic, Jasmina
  • Salle, Isabelle
  • Schilling, Linda

Abstract

This study examines monetary policy under competition between a centrally managed currency (the “Dollar†) and a fixed-supply alternative (the “Peso†). Theory and laboratory evidence reveal two equilibrium types. In the pass-through equilibrium, Dollar inflation is high and trade effects are limited. In the substitution equilibrium, Dollar dominance rises and velocity falls, muting Dollar inflation while generating inflation spillovers to Peso despite its fixed supply. Which equilibrium prevails depends on self-fulfilling inflation beliefs, not policy alone, and Dollar trade shares reveal these beliefs. The central bank therefore faces a trade-off between Dollar dominance and inflation control.

Suggested Citation

  • Arifovic, Jasmina & Salle, Isabelle & Schilling, Linda, 2026. "Losing grip? The Quantity Theory of Money under Currency Competition," CEPR Discussion Papers 22073, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:22073
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP22073
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

    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:cpr:ceprdp:22073. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.