Transactions Costs and Vehicle Currencies

32 Pages Posted: 15 Feb 2006

See all articles by Stanley W. Black

Stanley W. Black

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: November 21, 1989

Abstract

Using a simple model of transactions costs in the interbank foreign exchange market and a model of vehicle currency use, the interaction between transactions costs and vehicle currency use is explored. The impact of volume on bid-ask spreads is estimated from cross-section time series data on seven currencies. Data on transactions costs and the currency denomination of trade and capital flows is used to estimate changes in the attractiveness of using the U.S. dollar as a vehicle between 1980 and 1987. The data suggest a modest reduction in the attractiveness of the dollar as a vehicle.

JEL Classification: 430

Suggested Citation

Black, Stanley Warren, Transactions Costs and Vehicle Currencies (November 21, 1989). IMF Working Paper No. 89/96, Available at SSRN: https://ssrn.com/abstract=885075

Stanley Warren Black (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States
919-966-5926 (Phone)

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