Monetary Union and the Transaction Cost Savings of a Single Currency

Hugo Rodriguez Mendizabal

Review of International Economics, 2002, vol. 10, issue 2, 263-277

Abstract: 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.

Date: 2002
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