They use the genetic algorithm to update their decision rules. Agents' decisions are related to the total amount of savings between two periods of their lives and the fractions of savings held in each currency. The results of simulations show that the currency of the country that finances the larger of the two deficits becomes valueless. The adjustment process is characterized by a flight away from the currency used to finance the larger of the two deficits. The economy converges to a stationary equilibrium that corresponds to a single-currency economy.
Agents keep all of their savings in the currency used to finance the lower of the two deficits.
Inlationary deficit, open economy, evolutionary dynamics Return to 1999 working papers list. All rights reserved.