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We study how two fiat monies, one safe and one risky, compete in a decentralized trading environment. The currencies' equilibrium values, their transaction velocities and agents' spending patterns are endogenously determined. We derive conditions under which agents holding diversified currency portfolios spend the safe currency first and hold the risky one for later purchases. We also examine when the reverse spending pattern is optimal. Traders generally favor dealing in the safe currency, unless trade frictions and the currency risk is low. As risk increases or trading becomes more difficult, the transaction velocity and value of the safe money increases. Keywords: Money; Currency competition; Search; Dollarization JEL classification: E4; E5; D7

The research is done to study the dollarization or currency substitution via its use as a medium of exchange in a dual-currency economy. The analysis revealed the predictions regarding, how the values of currencies change after various changes in policy regimes and its effect on the exchange rate.

This article studies the impact of corruption on an economy with a hierarchical government. In particular, we study whether centralizing corruption within the higher level of government increases or decreases the total amount of corruption. We show that when the after-tax relative profitability of the formal sector as compared to that of the informal sector is high enough, adding a layer of government increases the total amount of corruption. By contrast, for high-enough public wages and/or an efficient monitoring technology of the bureaucratic system, centralization of corruption at the top of the government hierarchy redistributes bribe income from the lower level to the upper level. In the process, total corruption is reduced and the formal sector of the economy expands. (JEL D73), I. INTRODUCTION Corruption takes many forms and can arise at many levels, as pointed out by the classic study of Wade (1985). A large literature has grown up since then, [...]

This paper contains a benefit-cost analysis of disinflation. The analysis measures the costs of disinflation by 'sacrifice ratios' - the output lost during a disinflation-induced recession. The benefits of disinflation are from recent research that associates lower inflation with higher GDP growth rates. The analysis calculates sacrifice ratios and the growth effects of disinflation and critiques the methods that economists typically use to calculate these benefits and costs. The estimates are quite fragile but nevertheless show that the lost output from a disinflation-induced recession typically will be recouped in 10 to 15 years., I. INTRODUCTION In recent years, the debate on establishing price stability as the sole objective of monetary policy has intensified. Advocates of price stability argue that monetary policy has only [...]

A standard credit-rationaling model was used to analyze the impact of changing loan rates and the methods of repayment on a banking firm's loan supply. Since loan repayment is a function of the loan rate, then increases in loan rates will lead to a decrease in the probability of repayment. This relationship is being used by banks to create strategies to lessen the risks in their borrowing projects and create loaning schemes that will maximize profits.

A bargaining model describing partisan appointments to the central bank is presented. It is shown that initial appointments differ with later ones in terms of monetary policy. In addition, the timing of board chairman appointment will generate partisan policy. Under equilibrium conditions, confirmations will be just rubber stamp processes. Finally, longer board terms generate more moderate appointments and decreased partisan policies.

BASHING AND COERCION IN MONETARY POLICY I. INTRODUCTION 'We've got excess plant capacity...I don't think that growth is excessive' ...' I have not been overly concerned with inflation.' (President Bush [...]

The usage of two currencies is examined, in conditions where foreign currency is legally restricted for usage in domestic transactions.