Document Type

Article

Language

eng

Format of Original

12 p.

Publication Date

5-2003

Publisher

Elsevier

Source Publication

Journal of Economics and Business

Source ISSN

0148-6195

Abstract

This paper applies a two-country framework that allows for currency substitution in an environment in which policymakers optimally vary interest rates in light of utility-based objectives, one country pegs the value of its currency to the other nation’s currency, and government revenue is generated via explicit taxes and seigniorage. The analysis illustrates the roles that currency substitution, currency preferences, and efficiency of tax systems play in contributing to the likelihood of a “run” on one nation’s currency. We explore how these factors interact to influence the probability of a currency crisis in the country that fixes its exchange rate.

Comments

Accepted version. Journal of Economics and Business, Vol. 55, No. 3 (May/June 2003): 221-232. DOI.Published under Creative Commons license Attribution-NonCommercial-NoDerivatives 4.0 International.

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Included in

Economics Commons

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