Macro Seminar - Cathy Zhang (Purdue University)

Title: On the Emergence of International Currencies

A joint project with Yaroslav Rosokha and Marcos Cardozo from Purdue University

Abstract: We integrate theory and experimental evidence to study the emergence of different international monetary arrangements based on the circulation of two intrinsically worthless fiat currencies as media of exchange. Our framework is based a simple two-country, two-currency  search model where the value of each currency is jointly determined from private agents' decisions and   monetary policy formalized as changes in a country's money growth rate. We interpret the dynamics of acceptance patterns and inflation from the laboratory through the lens of an evolutionary learning model and show how the emergence of international currency depends on monetary policy and relative inflation rates.