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Transparency in the Foreign Exchange Market and the Volume of International Trade
Author(s) -
Broll Udo,
Eckwert Bernhard
Publication year - 2006
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/j.1467-9396.2006.00613.x
Subject(s) - transparency (behavior) , ex ante , economics , monetary economics , international economics , foreign exchange , volume (thermodynamics) , business , macroeconomics , political science , law , physics , quantum mechanics
In this paper we study the impact of more transparency in the foreign exchange market on the ex ante expected volume of international trade. Transparency is measured by the informational content of publicly observable signals. These signals convey information about the use of policy instruments which affect the future exchange rate. We find that a higher level of transparency may increase or decrease the volume of international trade. In particular, the impact of greater transparency depends on the curvature of the firms’ marginal cost function. Furthermore, the firms’ ex ante expected profits are higher when the foreign exchange market is more transparent.