Abstract

In this paper I study a model in which households can decide which currency or currencies they will accept. I provide a simple set of assumptions that are sufficient to prevent the indeterminacy of the exchange rate in the sense of Kareken and Wallace (1981). In a two-country model, stable equilibria have either a single currency or national currencies. I also show currency substitution occurs as an endogenous response to high growth in the stock of a currency.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 245-262
Launched on MUSE
2006-04-24
Open Access
No
Archive Status
Archived 2007
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