Ravikumar, B and Wallace, Neil (2002): A benefit of uniform currency.
Download (306Kb) | Preview
The role of distinct currencies is studied using a random-matching model with randomized trades. The equilibrium concept is the pairwise core in meetings. We show that there exist equilibria in which home and foreign currency play distinct roles and in which the quantities of trade and output are less than the optimal quantities. The benefit of a uniform currency is the elimination of such inferior equilibria. Specifically, any equilibrium in which home and foreign currency play distinct roles is dominated in terms of ex ante welfare by the best one-currency equilibrium -- for some parameters weakly, for some strongly.
|Item Type:||MPRA Paper|
|Original Title:||A benefit of uniform currency|
|Keywords:||uniform currency; random matching; pairwise core; dollarization;|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions
|Depositing User:||B Ravikumar|
|Date Deposited:||28. May 2010 18:36|
|Last Modified:||14. Feb 2013 12:04|
Aiyagari, S.R., N. Wallace, and R. Wright, Coexistence of Money and Interest-Bearing Securities, Journal of Monetary Economics, 37 (1996), 397-419.
Alvarez, F., Comment on "The Benefits of Dollarization when Stabilization Policy Lacks Credibility and Financial Markets are Imperfect", Journal of Money, Credit and Banking, 33 (2001) Part 2, 475-481.
Balasko, Y. and K. Shell, The Overlapping Generations Model. I. The Case of Pure Exchange Without Money, Journal of Economic Theory, 23 (1980), 281-306.
Berentsen, A., M. Molico, and R. Wright, Indivisibilities, Lotteries, and Monetary Exchange, Journal of Economic Theory, forthcoming.
Cavalcanti, R., The Color of Money. Pennsylvania State University: Manuscript, 2000.
Engineer, M. and S. Shi, Bargains, Barter, and Money, Review of Economic Dynamics, 4 (2001), 188-207.
Friedman, M. and A. J. Schwartz, A Monetary History of the United States: 1867-1960. Princeton: Princeton University Press, 1963.
Kareken, J. and N. Wallace, On the Indeterminacy of Equilibrium Exchange Rates, Quarterly Journal of Economics, 96 (1981), 207-222.
Kehoe, T.J., Comment on "Dollarization and the Integration of International Capital Markets", Journal of Money, Credit and Banking, 33 (2001) Part 2, 590-596.
King, R.G., N. Wallace, and W.E. Weber, Nonfundamental Uncertainty and Exchange Rates, Journal of International Economics, 32 (1992), 83-108.
Kocherlakota, N. and T. Krueger, A Signaling Model of Multiple Currencies, Review of Economic Dynamics, 2 (1999), 231-244.
Li, Y. and R. Wright, Government Transaction Policy, Media of Exchange, and Prices, Journal of Economic Theory, 81 (1998), 290-313.
Matsuyama, K., N. Kiyotaki, and A. Matsui, Toward a theory of International Currency, Review of Economic Studies, 60 (1993), 283-307.
Manuelli, R.E. and J. Peck, Exchange Rate Volatility in an Equilibrium Asset Pricing Model, International Economic Review, 31 (1990), 559-574.
Mundell, R.A., A Theory of Optimum Currency Areas. American Economic Review 51 (1961), 657-65.
Trejos A. and R. Wright, Search Theoretical Models of International Currency, Review, Federal Reserve Bank of St. Louis, May/June 1996.
Waller, C.J. and E. Soller Curtis, Currency Restrictions, Government Transaction Policies and Currency Exchange, Economic Theory, forthcoming.
Zhou, R., Currency Exchange in a Random Search Model, Review of Economic Studies, 64 (1997), 289-310.