An information approach to international currencies

Richard K. Lyons, Michael J. Moore

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

Models of currency competition focus on the 5% of trading attributable to balance-of-payments flows. We introduce an information approach that focuses on the other 95%. Important departures from traditional models arise when transactions convey information. First, prices reveal different information depending on whether trades are direct or though vehicle currencies. Second, missing markets arise due to insufficiently symmetric information, rather than insufficient transactions scale. Third, the indeterminacy of equilibrium that arises in traditional models is resolved: currency trade patterns no longer concentrate arbitrarily on market size. Empirically, we provide a first analysis of transactions across a full market triangle: the euro, yen and US dollar. The estimated transaction effects on prices support the information approach.
Original languageEnglish
Pages (from-to)211-221
Number of pages11
JournalJournal of International Economics
Volume79
Issue number2
DOIs
Publication statusPublished - Nov 2009

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International currency
Balance of payments
Trade patterns
Market size
Indeterminacy of equilibrium
Price support
Missing markets
Currency competition
Currency
Vehicle currency

Cite this

Lyons, Richard K. ; Moore, Michael J. / An information approach to international currencies. In: Journal of International Economics. 2009 ; Vol. 79, No. 2. pp. 211-221.
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An information approach to international currencies. / Lyons, Richard K.; Moore, Michael J.

In: Journal of International Economics, Vol. 79, No. 2, 11.2009, p. 211-221.

Research output: Contribution to journalArticle

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