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August 25, 2025International Economic Review

Search Frictions in Over‐the‐Counter Foreign Exchange Markets: Theory and Evidence

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Authors

DLDong LuDPDaniela PuzzelloAZAiyong Zhu

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Overview

Analytical model reveals that search frictions distort asset distribution and counterparty selection in OTC FX markets, indicating significant economic implications.

Key Points

  • Easing search frictions increases asset distribution variability, which can affect market stability.
  • Larger banks benefit from lower transaction costs, indicating economies of scale in the over-the-counter FX market.
  • The theoretical model accounts for different search abilities, shedding light on investor experiences in trading.
  • Counterfactual analysis suggests that policies reducing search frictions could enhance market efficiency and welfare.

Cite This Study

Lu et al. (2025) studied this question.

synapsesocial.com/papers/68af5d75ad7bf08b1eae122chttps://doi.org/10.1111/iere.70011
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Also Consider

Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context:

  1. 1OTC Discount2025 · 1 citations
  2. 2Socially Optimal Search Intensity in Over-the-Counter Markets2024 · 1 citations
  3. 3Information Friction in OTC Interdealer Markets2024
  4. 4Search and Inventory in Over‐the‐Counter Markets2025
  5. 5Search and Inventory in Over‐the‐Counter Markets2025