Journal Article

Currency unions and trade: how large is the treatment effect?

Torsten Persson

in Economic Policy

Published on behalf of Center for Economic Studies of the University of Munich

Volume 16, issue 33, pages 434-448
Published in print October 2001 | ISSN: 0266-4658
Published online July 2014 | e-ISSN: 1468-0327 | DOI: https://dx.doi.org/10.1111/1468-0327.00081
Currency unions and trade: how large is the treatment effect?

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SUMMARY

Currency unions and trade What can the data say?

The impact of a common currency on trade can be grossly mismeasured if countries that belong to currency unions are systematically different from those that do not, and if the relationship between trade and its observable determinants is complex. I argue that such complications are plausible and likely to distort the empirical results of a recent Economic Policy paper by Andrew Rose (Issue 30, 2000: pp. 7–45). Using techniques designed to be robust in this situation, I find that the effects of common currency on international trade are considerably less dramatic and much less precisely estimated.

— Torsten persson

I have always maintained that the measured effect of a single currency on trade appears implausibly large, but I am not convinced by Torsten Persson’s diagnosis and proposed solution. I apply a variety of estimation techniques to a new larger data set, where many more instances of currency union creation and abandonment make it possible to rely on time–series as well as cross–sectional evidence. The results are similar to my earlier ones: the effect of a single currency on trade is large.

— Andrew Rose

Journal Article.  0 words. 

Subjects: Economic Growth and Aggregate Productivity ; Financial Regulation ; Health, Education, and Welfare ; Labour and Demographic Economics ; Macroeconomics and Monetary Economics ; Public Economics ; Regional Government Analysis

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