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Monetary Union and the Transaction Cost Savings of a Single Currency
Author(s) -
Mendizábal Hugo Rodríguez
Publication year - 2002
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00331
Subject(s) - economics , transaction cost , volatility (finance) , currency , european union , stochastic volatility , currency union , database transaction , econometrics , monetary economics , common currency , single currency , international economics , macroeconomics , microeconomics , computer science , database
This paper computes the transaction cost savings derived from the European Monetary Union. A continuoustime, 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.