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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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  21. 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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