A BEJM Advances article.

Abstract

We develop a two-country, two-currency, search-theoretic model of monetary exchange, extending previous such models by endogenizing prices using bargaining theory. We analyze features of the environment that make it more likely that a given money circulates internationally. We show the value of a given currency rises if it circulates abroad, and falls if foreign money circulates locally. Also, we show that international monies have more value at home than abroad. These results help to explain the otherwise anomalous observation that the US dollar is an outlier in the empirical relationship between income and PPP deflators.

Submitted: February 8, 2001 · Accepted: April 18, 2001 · Published: April 23, 2001

Originally published in Advances in Macroeconomics.

Recommended Citation

Wright, Randall and Trejos, Alberto (2001) "International Currency," Advances in Macroeconomics: Vol. 1 : Iss. 1, Article 3.
Available at: http://www.bepress.com/bejm/advances/vol1/iss1/art3