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An information approach to international currencies
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Lyons, Richard K. and Moore, Michael J. (2009) An information approach to international currencies. Journal of International Economics, Volume 79 (Number 2). pp. 211-221. doi:10.1016/j.jinteco.2009.08.003 ISSN 0022-1996.
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Official URL: http://dx.doi.org/10.1016/j.jinteco.2009.08.003
Abstract
Models of currency competition focus on the 5% of trading attributable to balance-of-payments flows. We introduce an information approach that focuses on the other 95%. Important departures from traditional models arise when transactions convey information. First, prices reveal different information depending on whether trades are direct or though vehicle currencies. Second, missing markets arise due to insufficiently symmetric information, rather than insufficient transactions scale. Third, the indeterminacy of equilibrium that arises in traditional models is resolved: currency trade patterns no longer concentrate arbitrarily on market size. Empirically, we provide a first analysis of transactions across a full market triangle: the euro, yen and US dollar. The estimated transaction effects on prices support the information approach.
Item Type: | Journal Article | ||||
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Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | Journal of International Economics | ||||
Publisher: | Elsevier BV | ||||
ISSN: | 0022-1996 | ||||
Official Date: | November 2009 | ||||
Dates: |
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Volume: | Volume 79 | ||||
Number: | Number 2 | ||||
Page Range: | pp. 211-221 | ||||
DOI: | 10.1016/j.jinteco.2009.08.003 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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