Currency Competition, Network Externalities and Switching Costs: Towards an Alternative View of Optimum Currency Areas
Kevin Dowd () and
Sir David Greenaway ()
Economic Journal, 1993, vol. 103, issue 420, 1180-89
Existing models of currency competition and monetary union ignore network effects and switching costs. This paper develops a simple model that incorporates these features and shows how it can be used to shed light on observed monetary experience and current issues in international monetary relations. It explains why agents will often be reluctant to switch currencies, highlights the role of expectations, and sheds light on the nature of currency competition and the effect of legal restrictions. Copyright 1993 by Royal Economic Society.
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