Welfare Effects of Transparency in Foreign Exchange Markets: The Role of Hedging Opportunities

Author/Editor:

Burkhard Drees ; Bernhard Eckwert

Publication Date:

December 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper studies the impact of enhanced transparency on risk sharing opportunities in the foreign exchange market and the associated implications for ex ante welfare. Transparency is measured in this model by the informational content of publicly observable signals about exchange rate developments. We find that in this model more transparency improves welfare in economies that are poorly endowed with capital and/or where investors are not very risk-averse, while welfare is reduced in economies with large capital endowments and/or where investors are highly risk-averse.

Series:

Working Paper No. 2002/219

Subject:

English

Publication Date:

December 1, 2002

ISBN/ISSN:

9781451875188/1018-5941

Stock No:

WPIEA2192002

Pages:

16

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