Confidence in domestic money and currency substitution

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

5 Scopus Citations
View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)407-419
Journal / PublicationEconomic Inquiry
Volume41
Issue number3
Publication statusPublished - Jul 2003

Abstract

This article studies currency substitution in a model where domestic money suffers from lack of confidence. When agents' confidence is exogenous and constant, there is a unique but unstable dual-money steady state. However, when agents' confidence is updated endogenously, the dynamics of currency substitution are driven by agents' evolving beliefs, and the economy always con verges to an equilibrium where both monies circulate. Therefore, the economy under endogenous beliefs exhibits both persistence in currency substitution and tenacity of domestic money. Furthermore, in general, there are multiple steady states, which can be Pareto ranked by the degree of currency substitution.

Citation Format(s)

Confidence in domestic money and currency substitution. / Tandon, Ajay; Wang, Yong.

In: Economic Inquiry, Vol. 41, No. 3, 07.2003, p. 407-419.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review