 Do common currencies facilitate the net flow of capital among countries?Slavi Slavov () The North American Journal of Economics and Finance, 2009, vol. 20, issue 2, 124-144 Abstract: Earlier studies have hypothesized that membership in a common currency arrangement (either a currency union or a currency board) is associated with larger current account imbalances (either deficits or surpluses) for participating countries. This paper examines a panel of 128 countries over the period 1976-2005, and finds that the current account balances of common currency participants are more highly correlated with fundamental factors (such as net foreign assets, incomes, growth rates, fiscal policy, demographics, resource endowments) than the current accounts of non-participants. Furthermore, this greater sensitivity to fundamentals leads to larger current account imbalances. Participation in a common currency is typically associated with a 1.6 percent increase in a country's current account imbalance. Larger current account imbalances under common currency arrangements could be a sign of increased financial integration. Alternatively, they could reflect the difficulties of current account adjustment under fixed exchange rates. Keywords: Monetary; unions; Currency; boards; Current; account; dynamics (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:20:y:2009:i:2:p:124-144 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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