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Independent Currency Unions, Growth, and Inflation

Author

Listed:
  • Edwards, Sebastian

    (UCLA)

  • Magendzo, I-Igal

    (Central Bank of Chile)

Abstract

During the last few years, there has been a renewed interest in currency unions. This is the result both of the recent wave of currency crises as well as the implementation of the euro. In this paper, the authors use panel data for 1970-98 to investigate economic performance under historical independent currency unions (ICUs) along three dimensions: GDP per capital growth, growth volatility, and inflation. They use a treatment effects model that estimates jointly the probability of having a common currency and its effect on performance. The authors find that ICU countries have had a significantly lower rate of inflation, but macroeconomic volatility has been higher. Also, ICU countries have grown faster than with currency nations, but the East Caribbean Currency Area countries are found to be the driving force behind this result.

Suggested Citation

  • Edwards, Sebastian & Magendzo, I-Igal, 2002. "Independent Currency Unions, Growth, and Inflation," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 215-232, December.
    • Handle: RePEc:ime:imemes:v:20:y:2002:i:s1:p:215-232
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    References listed on IDEAS

    as
    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    3. Gabriele Galati & Kostas Tsatsaronis, 2001. "The impact of the euro on Europe's financial markets," BIS Working Papers 100, Bank for International Settlements.
    4. Fujiki, Hiroshi & Otani, Akira, 2002. "Do Currency Regimes Matter in the 21st Century? An Overview," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 47-79, December.
    5. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    6. Gabriele Galati & Kostas Tsatsaronis, 2003. "The impact of the euro on Europe's financial markets," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 12(3), pages 165-222, August.
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    Cited by:

    1. Ms. Katrin Elborgh-Woytek & Mr. Julian Berengaut, 2006. "Beauty Queens and Wallflowers: Currency Unions in the Middle East and Central Asia," IMF Working Papers 2006/226, International Monetary Fund.
    2. Paweł Młodkowski, 2006. "Konwergencja fiskalna w uniach walutowych w Afryce na tle rozwiązań europejskich," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1-2, pages 19-36.

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    More about this item

    JEL classification:

    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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