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Optimal Choice of a Union Partner

Author

Listed:
  • Vardal, E.

Abstract

We look at a country that has chosen to fix its exchange rate. The country can choose to tie its currency to alternative countries. The question is which one it will be optimal to choose. Three factors are considered: Trade share, real exchange rate variation and real shocks. A large trade share with a country counts in favour of a tie to that country. The same case with large symmetric shocks. Contrary to what is found in the literature, a large exchange rate variation against a trading partner raises the benefits of a tie to that country.

Suggested Citation

  • Vardal, E., 1999. "Optimal Choice of a Union Partner," Norway; Department of Economics, University of Bergen 0799, Department of Economics, University of Bergen.
    • Handle: RePEc:fth:bereco:0799
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    More about this item

    Keywords

    INTERNATIONAL FINANCIAL MARKET ; EXCHANGE RATE ; CURRENCIES;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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