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CURRENCY SUBSTITUTION, U.S. MONEY DEMAND, AND INTERNATIONAL INTERDEPENDENCE
Author(s) -
WILLETT THOMAS D.,
BORDO MICHAEL,
CHOUDHRI EHSAN,
JOINES DOUGLAS,
LANEY LEROY,
McCLURE J. HAROLD,
MELVIN MICHAEL,
PIGOTT CHARLES,
SCHWARTZ ANNA
Publication year - 1987
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1987.tb00267.x
Subject(s) - currency substitution , economics , monetary economics , currency , exchange rate , international economics , devaluation , volatility (finance) , monetary policy , financial economics
A number of writers have argued in recent years that massive international currency substitution has been a major cause of exchange rate volatility and monetary instability in the United States and other major countries. Such analysis is frequently coupled with recommendations for a return to pegged exchange rates. This paper critically examines the evidence presented for this currency substitution view. It argues that the weight of latest research suggests that direct international currency substitution has not been of major quantitative importance for the U.S. However, empirical evidence supports traditional views that international capital mobility can generate substantial short‐run monetary interdependence even under flexible exchange rates. Thus, even though international currency substitution is of little importance to U.S. monetary conditions, a broader range of international considerations may be of considerable importance for the U.S. economy.