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Monetary Unions and the Transaction Cost Savings of a Single Currency

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Author Info
Hugo Rodríguez

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Abstract

This paper studies the transaction cost savings of moving from a multi-currency exchange system to a single currency one. The analysis concentrates exclusively on the transaction and precautionary demand for money and abstracts from any other motives to hold currency. A continuous-time, stochastic Baumol- like model similar to that in Frenkel and Jovanovic (1980) is generalized to include several currencies and calibrated to fit European data. The analysis implies an upper bound for the savings associated with reductions of transaction costs derived from the European Monetary Union of approximately 0.6\% of the Community GDP. Additionally, the magnitudes of the brokerage fee and the volatility of transactions, whose estimation has traditionally been difficult to address empirically, are approximated for Europe.

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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 291.

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Date of creation: May 1998
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Handle: RePEc:upf:upfgen:291

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Related research
Keywords: Monetary Union; demand for money; single currency; multivariate brownian motion;

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Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lieberman, Charles, 1977. "The Transactions Demand for Money and Technological Change," The Review of Economics and Statistics, MIT Press, vol. 59(3), pages 307-17, August. [Downloadable!] (restricted)
  2. Baumol, William J & Tobin, James, 1989. "The Optimal Cash Balance Proposition: Maurice Allais' Priority," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1160-62, September. [Downloadable!] (restricted)
  3. Chang, Fwu-Ranq, 1999. "Homogeneity and the Transactions Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 720-30, November.
  4. Guidotti, Pablo E, 1993. "Currency Substitution and Financial Innovation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 109-24, February. [Downloadable!] (restricted)
  5. Robert E. Lucas, Jr., 1994. "On the welfare cost of inflation," Working Papers in Applied Economic Theory 94-07, Federal Reserve Bank of San Francisco.
  6. Frenkel, Jacob A & Jovanovic, Boyan, 1980. "On Transactions and Precautionary Demand for Money," The Quarterly Journal of Economics, MIT Press, vol. 95(1), pages 25-43, August. [Downloadable!] (restricted)
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  7. Barro, Robert J & Santomero, Anthony J, 1972. "Household Money Holdings and The Demand Deposit Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(2), pages 397-413, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bonpasse, Morrison, 2007. "The Single Global Currency - Common Cents for Business," MPRA Paper 6199, University Library of Munich, Germany. [Downloadable!]
  2. Paul R. Bergin & Reuven Glick, 2005. "Tradability, Productivity, and Understanding International Economic Integration," NBER Working Papers 11637, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Bonpasse, Morrison, 2008. "The Single Global Currency - Common Cents for Commerce," MPRA Paper 7002, University Library of Munich, Germany. [Downloadable!]
  4. Hugo Rodríguez, 1998. "The Variability of Money Velocity in a Generalized Cash-in-Advance Model," Economics Working Papers 320, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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