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Endogenous multiple currencies

  • Antoine Martin

I study a model of multiple currencies in which sellers can choose the currency they will accept. I provide conditions that are necessary and sufficient to avoid indeterminacy of the exchange rate. Under these assumptions, all stable equilibria have the property that all sellers in the same country accept the same currency. Thus stable equilibria are either single currency or national currencies equilibria. I also show that currency substitution occurs as an endogenous response to high growth in the stock of a currency.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 02-03.

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Date of creation: 2002
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Handle: RePEc:fip:fedkrw:rwp02-03
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  1. Soller Curtis, Elisabeth & Waller, Christopher J., 2000. "A search-theoretic model of legal and illegal currency," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 155-184, February.
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  3. Russell Cooper & Hubert Kempf, 2000. "Designing stabilization policy in a monetary union," Working Paper 0001, Federal Reserve Bank of Cleveland.
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  6. Lihong Liu & Anne Sibert, 1996. "Government Finance with Currency Substitution," Archive Discussion Papers 9609, Birkbeck, Department of Economics, Mathematics & Statistics.
  7. Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416.
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  12. 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.
  13. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
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  15. Minford, Patrick, 1995. "Other people's money: Cash-in-advance microfoundations for optimal currency areas," Journal of International Money and Finance, Elsevier, vol. 14(3), pages 427-440, June.
  16. Chang, Roberto, 1989. "Endogenous Currency Substitution, Inflationary Finance, And Welfare," Working Papers 89-12, C.V. Starr Center for Applied Economics, New York University.
  17. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Scholarly Articles 3445091, Harvard University Department of Economics.
  18. Akihiko Matsui, 1998. "Strong Currency and Weak Currency," CIRJE F-Series CIRJE-F-14, CIRJE, Faculty of Economics, University of Tokyo.
  19. Ravikumar, B & Wallace, Neil, 2002. "A benefit of uniform currency," MPRA Paper 22951, University Library of Munich, Germany.
  20. Zhou, Ruilin, 1997. "Currency Exchange in a Random Search Model," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 289-310, April.
  21. S.L. Schreft, 1991. "Welfare-improving credit controls," Working Paper 91-01, Federal Reserve Bank of Richmond.
  22. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  23. Tandon, Ajay & Wang, Yong, 1999. "Inflationary Finance, Capital Controls, and Currency Substitution," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 597-612, November.
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  25. Ireland, Peter N, 1994. "Money and Growth: An Alternative Approach," American Economic Review, American Economic Association, vol. 84(1), pages 47-65, March.
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