Journal Article

International Trade and Currency Exchange

Hélène Rey

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 68, issue 2, pages 443-464
Published in print April 2001 | ISSN: 0034-6527
Published online April 2001 | e-ISSN: 1467-937X | DOI:
International Trade and Currency Exchange

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On the international scene, away from national legal rules, the use of different currencies is largely due to the operation of the “Invisible Hand” The paper develops a three-country model of the world economy. This links real trade patterns with currency exchange structures in a general equilibrium framework which includes transaction costs on foreign exchange markets. In the presence of strategic complementarities, there are multiple equilibrium structures of currency exchange for a given underlying real trade pattern. The existence conditions of these different equilibria are characterized, using the trade links between countries as the key parameters. Finally, repercussions on world output of the choice of a currency exchange structure are analysed.

Journal Article.  0 words. 

Subjects: Economics

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