Currency Substitution under Transaction Costs

Linda Schilling and Harald Uhlig ()

AEA Papers and Proceedings, 2019, vol. 109, 83-87

Abstract: We consider a setting where agents can choose between two currencies to conduct their goods purchases. The usage of either currency comes with currency-specific transactions costs. For example, purchasing some goods with cryptocurrencies rather than dollars is easier and may avoid taxes. We explore an extension of Schilling-Uhlig (2019), allowing for asymmetry in transaction costs as well as dollar-bitcoin exchange fees. Agents alternate in their role as buyers and sellers, necessitating currency. A central bank steers the dollar inflation path, while bitcoins are in fixed supply. We characterize the nonstochastic equilibrium and the resulting exchange rate dynamics.

JEL-codes: D23 E31 E42 E51 E52 E58 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/pandp.20191017
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Citations: View citations in EconPapers (19)

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