Optimal Choice of a Union Partner

Erling Vårdal ()

Norway; Department of Economics, University of Bergen from Department of Economics, University of Bergen

Abstract: We look at a country that has chosen to fix its exchange rate. The country can choose to tie its currency to alternative countries. The question is which one it will be optimal to choose. Three factors are considered: Trade share, real exchange rate variation and real shocks. A large trade share with a country counts in favour of a tie to that country. The same case with large symmetric shocks. Contrary to what is found in the literature, a large exchange rate variation against a trading partner raises the benefits of a tie to that country.

Keywords: INTERNATIONAL FINANCIAL MARKET; EXCHANGE RATE; CURRENCIES (search for similar items in EconPapers)
JEL-codes: F33 F41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:fth:bereco:0799

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