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Transparency in the Foreign Exchange Market and the Volume of International Trade

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  • Udo Broll
  • Bernhard Eckwert

Abstract

In this paper we study the impact of more transparency in the foreign exchange market on the ex ante expected volume of international trade. Transparency is measured by the informational content of publicly observable signals. These signals convey information about the use of policy instruments which affect the future exchange rate. We find that a higher level of transparency may increase or decrease the volume of international trade. In particular, the impact of greater transparency depends on the curvature of the firms’ marginal cost function. Furthermore, the firms’ex ante expected profits are higher when the foreign exchange market is more transparent.

Suggested Citation

  • Udo Broll & Bernhard Eckwert, 2006. "Transparency in the Foreign Exchange Market and the Volume of International Trade," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 571-581, September.
    • Handle: RePEc:bla:reviec:v:14:y:2006:i:4:p:571-581
    DOI: 10.1111/j.1467-9396.2006.00613.x
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    Cited by:

    1. Udo Broll & Jack E. Wahl & Christoph Wessel, 2011. "Export, Exchange Rate Risk and Hedging: The Duopoly Case," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 490-502, November.
    2. Hermelingmeier, Christian, 2010. "The competitive firm and the role of information about uncertain factor prices," Economic Modelling, Elsevier, vol. 27(2), pages 547-552, March.
    3. Udo Broll & Sabine Hansen-Averlant, 2010. "Exchange rate volatility, international trade and labour demand," International Economics and Economic Policy, Springer, vol. 7(4), pages 423-436, December.
    4. François Guillemin & Maria Semenova, 2020. "Transparency and market discipline: evidence from the Russian interbank market," Annals of Finance, Springer, vol. 16(2), pages 219-251, June.

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