Currency Portfolios and Nominal Exchange Rates in a Dual Currency Search Economy

FRB of Cleveland, Research Department Working Paper No. 9916

Posted: 23 Apr 2000  

Ben R. Craig

Federal Reserve Bank of Cleveland

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis; University of Notre Dame - Department of Economics

Date Written: 1999

Abstract

We analyze a dual currency search model in which agents are allowed to hold multiple units of both currencies. Hence, agents hold portfolios of currency. We study equilibria in which the two currencies are identical and equilibria in which the two currencies differ according to the magnitude of the 'inflation tax' risk associated with each currency. The inflation tax is modeled by having government agents randomly confiscate the two currencies at different rates. We are able to obtain analytical results in a very special case but in general we must rely on numerical methods to solve for the steady-state distributions of currency portfolios, prices and value functions.

JEL Classification: F30, F41, G15

Suggested Citation

Craig, Ben R. and Waller, Christopher J., Currency Portfolios and Nominal Exchange Rates in a Dual Currency Search Economy (1999). FRB of Cleveland, Research Department Working Paper No. 9916. Available at SSRN: https://ssrn.com/abstract=217008

Ben R. Craig (Contact Author)

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-2061 (Phone)
216-579-3050 (Fax)

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

University of Notre Dame - Department of Economics ( email )

434 Flanner Hall
Notre Dame, IN 46556
United States
574-631-4963 (Phone)
574-631-9238 (Fax)

HOME PAGE: http://www.nd.edu/~cwaller/

Paper statistics

Abstract Views
423