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Welfare Effects of Transparency in Foreign Exchange Markets

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  • Burkhard Drees
  • Bernhard Eckwert

Abstract

This paper studies the impact of enhanced transparency on risk sharing opportunities in the foreign exchange market and the associated implications for ex ante welfare. Transparency is measured in this model by the informational content of publicly observable signals about exchange rate developments. We find that in this model more transparency improves welfare in economies that are poorly endowed with capital and/or where investors are not very risk-averse, while welfare is reduced in economies with large capital endowments and/or where investors are highly risk-averse.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/219.

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Length: 16
Date of creation: 01 Dec 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/219

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References

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  1. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
  2. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, vol. 49(2), pages 335-58, March.
  3. Orosel, Gerhard O., 1996. "Informational efficiency and welfare in the stock market," European Economic Review, Elsevier, vol. 40(7), pages 1379-1411, August.
  4. Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-53, May.
  5. Grossman, Sanford J & Kihlstrom, Richard E & Mirman, Leonard J, 1977. "A Bayesian Approach to the Production of Information and Learning by Doing," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 533-47, October.
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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. Banerjee, Anurag N. & Seccia, Giulio, 2002. "On the "Hirshleifer effect'' of unscheduled monetary policy announcements," Discussion Paper Series In Economics And Econometrics 0213, Economics Division, School of Social Sciences, University of Southampton.
  3. Juan Hatchondo, 2004. "The value of information with heterogeneous agents and partially revealing prices," Econometric Society 2004 North American Summer Meetings 175, Econometric Society.

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