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Monetary Union and the Transaction Cost Savings of a Single Currency

  • Rodriguez Mendizabal, Hugo

This paper computes the transaction cost savings derived from the European Monetary Union. A continuous-time, stochastic, Baumol-like model is generalized to include several currencies and calibrated to fit European data. The analysis implies an upper bound for the savings derived from reductions in transaction costs of approximately 0.69% of Union 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. Copyright 2002 by Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 10 (2002)
Issue (Month): 2 (May)
Pages: 263-77

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Handle: RePEc:bla:reviec:v:10:y:2002:i:2:p:263-77
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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Jacob A. Frenkel & Boyan Jovanovic, 1978. "On Transactions and Precautionary Demand For Money," NBER Working Papers 0288, National Bureau of Economic Research, Inc.
  6. 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.
  7. Guidotti, Pablo E, 1993. "Currency Substitution and Financial Innovation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 109-24, February.
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