IDEAS home Printed from https://ideas.repec.org/p/upf/upfgen/291.html
   My bibliography  Save this paper

Monetary unions and the transaction cost savings of a single currency

Author

Listed:
  • Hugo Rodríguez

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.

Suggested Citation

  • Hugo Rodríguez, 1998. "Monetary unions and the transaction cost savings of a single currency," Economics Working Papers 291, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:291
    as

    Download full text from publisher

    File URL: https://econ-papers.upf.edu/papers/291.pdf
    File Function: Whole Paper
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Guidotti, Pablo E, 1993. "Currency Substitution and Financial Innovation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 109-124, February.
    2. 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.
    3. Robert M. Adams, 1994. "On the welfare cost of inflation," Working Papers in Applied Economic Theory 94-07, Federal Reserve Bank of San Francisco.
    4. Jacob A. Frenkel & Boyan Jovanovic, 1980. "On Transactions and Precautionary Demand for Money," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(1), pages 25-43.
    5. 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 1160-1162, September.
    6. Chang, Fwu-Ranq, 1999. "Homogeneity and the Transactions Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 720-730, November.
    7. Lieberman, Charles, 1977. "The Transactions Demand for Money and Technological Change," The Review of Economics and Statistics, MIT Press, vol. 59(3), pages 307-317, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maurice Obstfeld, 1998. "Open‐Economy Macroeconomics: Developments in Theory and Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 247-275, March.
    2. Alvarez, Fernando & Dixit, Avinash, 2014. "A real options perspective on the future of the Euro," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 78-109.
    3. Bonpasse, Morrison, 2007. "The Single Global Currency - Common Cents for Business," MPRA Paper 6199, University Library of Munich, Germany.
    4. repec:zbw:rwirep:0489 is not listed on IDEAS
    5. Timo Baas, 2014. "Estonia and the European Monetary Union – Are there Benefi ts from a “Late” Accession?," Ruhr Economic Papers 0489, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. Bonpasse, Morrison, 2008. "The Single Global Currency - Common Cents for Commerce," MPRA Paper 7002, University Library of Munich, Germany.
    7. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Javier Gómez P., 1998. "La Demanda Por Dinero En Colombia," Borradores de Economia 2969, Banco de la Republica.
    2. Baccarin, Stefano, 2009. "Optimal impulse control for a multidimensional cash management system with generalized cost functions," European Journal of Operational Research, Elsevier, vol. 196(1), pages 198-206, July.
    3. García Cabello, Julia, 2017. "The future of branch cash holdings management is here: New Markov chains," European Journal of Operational Research, Elsevier, vol. 259(2), pages 789-799.
    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.
    5. Bar-Ilan, Avner & Perry, David & Stadje, Wolfgang, 2004. "A generalized impulse control model of cash management," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1013-1033, March.
    6. Bar-Ilan, Avner & Marion, Nancy, 2013. "Demand for cash with intra-period endogenous consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2668-2678.
    7. V. Vance Roley, 1985. "Money Demand Predictability," NBER Working Papers 1580, National Bureau of Economic Research, Inc.
    8. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 171-199.
    9. Elena Sinelnikova-Muryleva, 2011. "Innovations in the sphere of payments and the money demand in Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 157P.
    10. Dumas, Bernard & Savioz, Marcel René, 2020. "A Theory of the Nominal Character of Stock Securities," CEPR Discussion Papers 15507, C.E.P.R. Discussion Papers.
    11. Fernando Alvarez & Francesco Lippi & Roberto Robatto, 2019. "Cost of Inflation in Inventory Theoretical Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 206-226, April.
    12. Emmanuelle Nys, 2008. "Service provision and loans : Price and risk implications," Revue d'économie politique, Dalloz, vol. 118(3), pages 411-428.
    13. Jukka Isohätälä & Alistair Milne & Donald Robertson, 2020. "The Net Worth Trap: Investment and Output Dynamics in the Presence of Financing Constraints," Mathematics, MDPI, vol. 8(8), pages 1-32, August.
    14. Alexander L. Wolman, 1998. "Staggered price setting and the zero bound on nominal interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-24.
    15. Yin‐Wong Cheung & Xingwang Qian, 2009. "Hoarding of International Reserves: Mrs Machlup's Wardrobe and the Joneses," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 824-843, September.
    16. Jan Tin, 2010. "Bequest motives and household money demand," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(3), pages 269-283, July.
    17. Bouckaert, Jan & Degryse, Hans, 1995. "Phonebanking," European Economic Review, Elsevier, vol. 39(2), pages 229-244, February.
    18. Tarkka, Juha, 1994. "Implicit interest as price discrimination in the bank deposit market," Research Discussion Papers 1/1994, Bank of Finland.
    19. I. Biefang-Frisancho Mariscal & P.G.A. Howells, 2012. "Income velocity and non-GDP transactions in the UK," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(1), pages 97-110, March.
    20. Anderson, Richard G. & Hoffman, Dennis L. & Rasche, Robert H., 2002. "A vector error-correction forecasting model of the US economy," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 569-598, December.

    More about this item

    Keywords

    Monetary Union; demand for money; single currency; multivariate brownian motion;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:291. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.econ.upf.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.