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Should Eastern European Countries Join the Euro? A Review and Update of Trade Estimates and Consideration of Endogenous OCA Criteria

  • Frankel, Jeffrey

    (Harvard U)

An advantage of monetary union is facilitating trade. After many critiques, Rose's basic finding is left standing: currency unions have greater trade effects than previously believed. Updated estimates also find an effect of the euro on trade among members that is significant (though mysteriously still only 15%). An argument for retaining monetary independence is asymmetric shocks, i.e., low cyclical correlation. Eastern European countries might want to wait before joining, because their trade patterns and cyclical correlations have been gradually shifting toward Western Europe anyway; thus the argument for the euro strengthens as time passes, while the argument against it weakens.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp08-059.

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Date of creation: Oct 2008
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Handle: RePEc:ecl:harjfk:rwp08-059
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