On the Emergence of International Currencies: An Experimental Approach

Marcos Cardozo, Yaroslav Rosokha and Cathy Zhang

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: We integrate theory and experimental evidence to study the emergence of different international monetary arrangements based on the circulation of two intrinsically worthless fiat currencies as media of exchange. Our framework is based on a two-country, two-currency search model where the value of each currency is jointly determined by private agents’ decisions and monetary policy formalized as changes in a country’s money growth rate. Results from the experiments indicate subjects coordinate on a regime where both currencies are accepted even when other regimes are theoretically possible. At the same time, we find the acceptance of foreign currency depends on relative inflation rates where sellers tend to reject payment with a more inflationary foreign currency. We also document the presence of learning in shaping acceptance patterns over time.

Keywords: international currency; monetary policy; inflation; experimental macroeconomics (search for similar items in EconPapers)
JEL-codes: C92 D83 E40 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2024-02
New Economics Papers: this item is included in nep-cba, nep-exp, nep-fdg, nep-mon, nep-opm and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1351

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