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A Currency of One's Own? An Empirical Investigation on Dollarization and Independent Currency Unions

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  • Sebastian Edwards
  • Igal Magendzo

Abstract

In this paper we analyze whether common currency' countries that is, dollarized and independent currency union countries have outperformed countries that have a currency of their own. The paper is empirical and estimates jointly the probability of being a common currency country and outcome' equations for growth, volatility and inflation. We find that both type of common currency countries have lower inflation than countries with a domestic currency. Dollarized countries have lower growth and higher volatility than countries with a domestic currency. Currency unions, on the other hand, have higher growth and higher volatility than countries with a currency of their own.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9514.

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Date of creation: Feb 2003
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Publication status: published as Edwards, Sebastian and I. Igal Magendzo. "Strict Dollarization and Economic Performance: An Empirical Investigation," Journal of Money, Credit and Banking, 2006, v38(1,Feb), 269-282.
Handle: RePEc:nbr:nberwo:9514

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  3. Sebastian Edwards & I. Igal Magendzo, 2001. "Dollarization, Inflation and Growth," NBER Working Papers 8671, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Sebastian Edwards, 2006. "Monetary unions, external shocks and economic performance: A Latin American perspective," International Economics and Economic Policy, Springer, vol. 3(3), pages 225-247, December.
  2. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
  3. Husain, Aasim M. & Mody, Ashoka & Rogoff, Kenneth S., 2005. "Exchange rate regime durability and performance in developing versus advanced economies," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 35-64, January.
  4. Andreas Hauskrecht & Nguyen Thanh Hai, 2004. "Dollarization in Viet Nam," Working Papers 2004-25, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  5. Aaron Jackson & William Miles, 2008. "Fixed Exchange Rates and Disinflation in Emerging Markets: How Large Is the Effect?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(3), pages 538-557, October.
  6. Asici, Ahmet Atil & Ivanova, Nadezhda & Wyplosz, Charles, 2005. "How to Exit from Fixed Exchange Rate Regimes," CEPR Discussion Papers 5141, C.E.P.R. Discussion Papers.
  7. Ahmed Atil Asici, 2008. "Parametric and Non-Parametric Approaches to Exits from Fixed Exchange Rate Regimes," Working Papers 401, Economic Research Forum, revised May 2008.
  8. James Yetman, 2003. "Currency Unions, Trade Flows, and Capital Flows," Working Papers 182003, Hong Kong Institute for Monetary Research.
  9. Karras, Georgios & Lee, Jin Man & Stokes, Houston, 2005. "Sources of exchange-rate volatility: Impulses or propagation?," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 213-226.
  10. repec:onb:oenbwp:y::i:126:b:1 is not listed on IDEAS
  11. Klüh, Ulrich, 2005. "Safety Net Design and Systemic Risk: New Empirical Evidence," Discussion Papers in Economics 662, University of Munich, Department of Economics.
  12. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
  13. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece.
  14. Simwaka, Kisu, 2010. "Choice of exchange rate regimes for African countries: Fixed or Flexible Exchange rate regimes?," MPRA Paper 23129, University Library of Munich, Germany.

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