Toward a Theory of International Currency: A Step Further

We generalize the two-country, two-currency, search-based monetary model of Matsuyama, Kiyotaki and Matsui to resolve two "short-comings" in their approach. First, we endogenize prices and exchange rates.  Second, we discuss some policy considerations. We use the model to address several questions related to the determination of the realms of circulation and relative values of different monies. 

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Paper Number
97-015
Year
1997