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Currency Unions and International Integration

  • Andrew K. Rose
  • Charles Engel

This paper characterizes the integration patterns of international currency unions (such as the CFA Franc zone and the East Caribbean Currency Area). We empirically explore different features of currency unions, and compare them both to countries with sovereign monies, and to regions within nations. We ask: are countries within international currency unions as integrated as regions within political unions? We do this by examining the criteria for Mundell's concept of an optimum currency area. We find that members of currency unions are more integrated than countries with their own currencies, but less integrated than regions within a country. For instance, we find that currency union members have more trade and less volatile real exchange rates than countries with their own monies, but less trade and more volatile exchange rates than regions within individual countries. Similarly, business cycles are more highly synchronized across currency union countries than across countries with sovereign monies, but not as synchronized as regions of a single country. Finally, currency union membership is not associated with significantly greater risk sharing, though risk sharing is widespread within countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7872.

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Date of creation: Sep 2000
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Publication status: published as Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-89, November.
Handle: RePEc:nbr:nberwo:7872
Note: IFM
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  1. Bacchetta, Philippe & Rose, Andrew K. & van Wincoop, Eric, 2001. "Intranational Economics and International Economics," Journal of International Economics, Elsevier, vol. 55(1), pages 1-1, October.
  2. Engel, C. & Rogers, J.H., 1995. "How Wide is the Border?," Papers 4-95-16, Pennsylvania State - Department of Economics.
  3. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
  4. Rogers, J.H. & Jenkins, M.A., 1993. "Haircuts or Hysteresis? Sources of Movements in Real Exchange Rates," Papers 4-93-6, Pennsylvania State - Department of Economics.
  5. Glenn D. Rudebusch, 1992. "The uncertain unit root in real GNP," Finance and Economics Discussion Series 193, Board of Governors of the Federal Reserve System (U.S.).
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  8. Parsley, David C & Wei, Shang-Jin, 1996. "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1211-36, November.
  9. Stephen Cecchetti & Nelson C. Mark & Robert Sonora, 1999. "Price Level Convergence Among United States Cities: Lessons for the European Central Bank," Working Papers 99-01, Ohio State University, Department of Economics.
  10. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  11. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  12. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  13. Charles Engel & Michael K. Hendrickson & John H. Rogers, 1997. "Intra-National, Intra-Continental, and Intra-Planetary PPP," NBER Working Papers 6069, National Bureau of Economic Research, Inc.
  14. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
  15. Engel, Charles & Hendrickson, Michael K. & Rogers, John H., 1997. "Intranational, Intracontinental, and Intraplanetary PPP," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 480-501, December.
  16. Todd E. Clark & Eric van Wincoop, 1999. "Borders and business cycles," Staff Reports 91, Federal Reserve Bank of New York.
  17. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  18. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  19. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
  20. Robert C. Feenstra & Robert E. Lipsey & Harry P. Bowen, 1997. "World Trade Flows, 1970-1992, with Production and Tariff Data," NBER Working Papers 5910, National Bureau of Economic Research, Inc.
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