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Independent Currency Unions, Growth, and Inflation

  • Edwards, Sebastian

    (UCLA)

  • Magendzo, I-Igal

    (Central Bank of Chile)

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    During the last few years, there has been a renewed interest in currency unions. This is the result both of the recent wave of currency crises as well as the implementation of the euro. In this paper, the authors use panel data for 1970-98 to investigate economic performance under historical independent currency unions (ICUs) along three dimensions: GDP per capital growth, growth volatility, and inflation. They use a treatment effects model that estimates jointly the probability of having a common currency and its effect on performance. The authors find that ICU countries have had a significantly lower rate of inflation, but macroeconomic volatility has been higher. Also, ICU countries have grown faster than with currency nations, but the East Caribbean Currency Area countries are found to be the driving force behind this result.

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    File URL: http://www.imes.boj.or.jp/research/papers/english/me20-s1-9.pdf
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    Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

    Volume (Year): 20 (2002)
    Issue (Month): S1 (December)
    Pages: 215-232

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    Handle: RePEc:ime:imemes:v:20:y:2002:i:s1:p:215-232
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    1. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
    2. Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
    3. Rose, Andrew, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," Seminar Papers 678, Stockholm University, Institute for International Economic Studies.
    4. Fujiki, Hiroshi & Otani, Akira, 2002. "Do Currency Regimes Matter in the 21st Century? An Overview," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 47-79, December.
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