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Money: A Market Microstructure Approach

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  • Krueger, Malte

Abstract

The current discussion about the future of the financial system draws heavily on a set of theories known as the ‘New Monetary Economics’. The New Monetary Economics predicts that deregulation and financial innovation will lead to a moneyless world. This paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary instrument to reduce transaction costs. This finding is supported by empirical evidence from foreign exchange markets.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18416.

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Date of creation: Jan 2008
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Handle: RePEc:pra:mprapa:18416

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Keywords: New monetary economics; monetary separation; market microstructure theory; monetary theory; moneyless world; financial innovation;

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  1. Ananth Madhavan & Seymour Smidt, . "A Bayesian Model of Intraday Specialist Pricing," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 02-91, Wharton School Rodney L. White Center for Financial Research.
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  6. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, Elsevier, vol. 3(3), pages 205-258, August.
  7. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, Elsevier, vol. 14(1), pages 71-100, March.
  8. Robert E. Hall, 1982. "Explorations in the Gold Standard and Related Policies for Stabilizing the Dollar," NBER Chapters, in: Inflation: Causes and Effects, pages 111-122 National Bureau of Economic Research, Inc.
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  16. Fama, Eugene F., 1983. "Financial intermediation and price level control," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 7-28.
  17. White, Lawrence H, 1984. "Competitive Payments Systems and the Unit of Account," American Economic Review, American Economic Association, American Economic Association, vol. 74(4), pages 699-712, September.
  18. F H Capie & Dimitrios P Tsomocos & Geoffrey E Wood, 2003. "E-barter versus fiat money: will central banks survive?," Bank of England working papers 197, Bank of England.
  19. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  20. Niehans, Jurg, 1982. "Innovation in monetary policy : Challenge and response," Journal of Banking & Finance, Elsevier, Elsevier, vol. 6(1), pages 9-28, March.
  21. Hoover, Kevin D, 1988. "Money, Prices and Finance in the New Monetary Economics," Oxford Economic Papers, Oxford University Press, vol. 40(1), pages 150-67, March.
  22. Cowen, Tyler & Kroszner, Randall, 1987. "The Development of the New Monetary Economics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(3), pages 567-90, June.
  23. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 393-408, June.
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