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Unilateral currency union with a high-income area: the case of Montenegro

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  • Arslan Razmi

Abstract

Unilateral euroization by developing economies is underexplored even in comparison to unilateral dollarization (taken to mean the adoption of the US dollar as legal tender). This paper attempts to help fill this gap in the literature by investigating the case of Montenegro, which is one of the two countries/regions that have unilaterally adopted the euro as the legal tender. Montenegro's limited monetary policy options make the nature of business cycles important. The evidence presented here suggests that Montenegro has a low degree of synchronization, limited structural similarity, and weak trade integration with the Eurozone. Moreover, there is little evidence for diversification or endogenous structural assimilation following euroization. The case for currency union is weak for Montenegro and appears to be defensible only on grounds of policy credibility. This has important implications for euroization, development policy, and structural change.

Suggested Citation

  • Arslan Razmi, 2022. "Unilateral currency union with a high-income area: the case of Montenegro," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 19(1), pages 31-61, June.
    • Handle: RePEc:liu:liucej:v:19:y:2022:i:1:p:31-61
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    More about this item

    Keywords

    Montenegro; Euroization; Diversification; Structural change; Optimum currency areas;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F15 - International Economics - - Trade - - - Economic Integration
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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