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Reconsidering the trade-creating effects of a currency union

Michael Pakko () and Howard Wall ()

Review, 2001, issue May, No v. 83, no. 5, 37-46

Abstract: This paper reconsiders recent empirical evidence found by Andrew Rose that countries adopting a common currency will triple their bilateral trade. The authors find that this large estimated effect is due to estimation bias arising from missing and/or misspecified time-variant factors rather than to the adoption of a common currency. The results of this study, obtained with a general specification of time-variant factors, indicate that a common currency actually leads to a small reduction in trade over a 5-year period, although this result is not statistically different from zero. The authors also find that over 10- and 20-year periods, trade volumes are more than halved by the adoption of a common currency.

Keywords: International trade; Money (search for similar items in EconPapers)
Date: 2001
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Handle: RePEc:fip:fedlrv:y:2001:i:may:p:37-46:n:v.83no.5