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Currencies, competition, and clans

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  • Kocenda, Evzen
  • Hanousek, Jan
  • Engelmann, Dirk

Abstract

We present a theoretical and empirical analysis of stable coexistence among the world's anchor currencies (G3): the dollar, euro and yen. The theoretical model presented in this paper builds on a model of spatial competition and rests on a set of assumptions related to the behavior of central banks, the working of exchange rate regimes, the geography of money, and international monetary arrangements. We show that stable coexistence in the sense of the pure-strategy equilibrium derived in our model is attainable in the case of two anchor currencies, but not in the case of three. The empirical evidence provides support for the assumptions and conclusions of the model.

Suggested Citation

  • Kocenda, Evzen & Hanousek, Jan & Engelmann, Dirk, 2008. "Currencies, competition, and clans," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 1115-1132.
    • Handle: RePEc:eee:jpolmo:v:30:y:2008:i:6:p:1115-1132
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    Cited by:

    1. Aggarwal, Raj & Muckley, Cal B., 2010. "Assessing co-ordinated Asian exchange rate regimes: Proposal for a possible move towards a common currency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(2), pages 149-165, April.
    2. Kang Chen & Chang Yee Kwan, 2015. "How are Exchange Rates Managed? Evidence of an Anchor-Based Heuristic," The World Economy, Wiley Blackwell, vol. 38(6), pages 1006-1014, June.

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    More about this item

    Keywords

    Exchange rates Anchor currency Satellite currency Exchange rate regimes Central bank policy Monetary union Spatial competition Geography of money;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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