Hysteresis in a simple model of currency substitution

Martín Uribe ()

No 509, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A simple model of currency substitution is developed in which the private cost of performing transactions in the foreign currency depends upon the aggregate degree of dollarization. This feature generates multiple steady states and hysteresis in an otherwise standard cash-in-advance model of a small open economy. In particular, a temporary increase in the rate of inflation can drive the economy to a dollarized equilibrium in which the velocity of circulation of domestic currency is permanently higher.

Keywords: Money; Econometric models (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Hysteresis in a simple model of currency substitution (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:509

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