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Currency Exchange in a Random Search Model

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  • Ruilin Zhou

Abstract

This paper investigates foreign exchange trading, a phenomenon that typically accompanies international trade. A search-theoretic general equilibrium approach is adopted to study a two-country, two-currency model. For some parameter values of the model, there exist some pure-strategy equilibria in which commodity-currency trade is conducted primarily through local currency and in which there is active currency-currency exchange. The coexistence of valued foreign currency and its local non-acceptability conforms largely with the country-specific cash-in-advance constraint that is often assumed exogenously in international finance literature.

Suggested Citation

  • Ruilin Zhou, 1997. "Currency Exchange in a Random Search Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 289-310.
    • Handle: RePEc:oup:restud:v:64:y:1997:i:2:p:289-310.
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    File URL: http://hdl.handle.net/10.2307/2971713
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