Montenegro’s Unilateral Euroization

Arslan Razmi ()
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Arslan Razmi: Department of Economics, University of Massachusetts Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: Unilateral euroization is underexplored even in comparison to unilateral dollarization (taken to mean the adoption of the US dollar as legal tender). This paper attempts to partly fill this gap in the literature by investigating the case of Montenegro, which is one of the two countries 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 limited evidence for 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.

Keywords: Montenegro; euroization; dollarization; currency union; optimal currency areas. (search for similar items in EconPapers)
JEL-codes: E32 E52 F15 F45 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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