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Currency Unions in Prospect and Retrospect

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  • J.M.C. Santos Silva
  • Silvana Tenreyro

    ()
    (Department of Economics, University of Essex, Colchester CO4 3SQ, United Kingdom, and CEMAPRE
    Department of Economics, London School of Economics and Political Science, London WC2A 2AE, United Kingdom, and CREI, CEP, and CEPR)

Abstract

We critically review the recent literature on currency unions and discuss the methodological challenges posed by the empirical assessment of their costs and benefits. In the process, we provide evidence on the economic effects of the euro. In particular, and in contrast with estimates of the trade effect of other currency unions, we find that the euro's impact on trade has been close to zero. After reviewing the costs and benefits of joining a currency union, we conclude with some open questions on normative and positive aspects of the theory of currency unions, emphasizing the need for a unified welfare-based framework to weigh their costs and gains.

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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 2 (2010)
Issue (Month): 1 (09)
Pages: 51-74

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Handle: RePEc:anr:reveco:v:2:y:2010:p:51-74

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Keywords: effects of currency unions; euro; monetary union; optimum currency areas; trade;

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