Currency Exchange in a Random Search Model

Ruilin Zhou ()

The Review of Economic Studies, 1997, vol. 64, issue 2, 289-310

Abstract: This paper investigates foreign exchange trading, a phenomenon that typically accompanies international trade. A search-theoretic general equilibrium approach is adopted to study a two-country, two-currency model. For some parameter values of the model, there exist some pure-strategy equilibria in which commodity-currency trade is conducted primarily through local currency and in which there is active currency-currency exchange. The coexistence of valued foreign currency and its local non-acceptability conforms largely with the country-specific cash-in-advance constraint that is often assumed exogenously in international finance literature.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:64:y:1997:i:2:p:289-310.

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