Experimental Evidence on Currency Competition \ in Integrated Economies

Abstract:

This paper implements a laboratory experiment to study how economic integration and relative country sizes affect competition between two intrinsically worthless currencies as media of exchange. We design the experiments to implement a  two-country, two-currency search model with parameters capturing the degree of economic integration and relative country sizes. Through laboratory experiments, we test the model's predictions on  currency circulation, trade, and welfare under varying degrees of integration and country sizes.