An information approach to international currencies

Richard K. Lyons, Michael J. Moore

Research output: Contribution to journalArticlepeer-review

20 Citations (Scopus)


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
Issue number2
Publication statusPublished - Nov 2009

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance


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