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

  • Sebastian Edwards
  • Igal Magendzo

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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File URL: http://www.nber.org/papers/w9514.pdf
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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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  19. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
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