The Currency Union Effect: A PPML Re-assessment with High-Dimensional Fixed Effects
Mario Larch (),
Joschka Wanner (),
Yoto Yotov and
Thomas Zylkin ()
No 2017-7, School of Economics Working Paper Series from LeBow College of Business, Drexel University
Recent work on the effects of currency unions (CUs) on trade stresses the importance of using many countries and years in order to obtain reliable estimates. However, for large samples, computational issues limit choice of estimator, leaving an important methodological gap. To address this gap, we unveil an iterative PPML estimator, which flexibly accounts for multilateral resistance, pair-specific heterogeneity, and correlated errors across countries and time. When applied to a comprehensive sample with more than 200 countries trading over 65 years, these innovations flip the conclusions of an otherwise rigorously-specified linear model. Our estimates for both the overall CU effect and the Euro effect specifically are economically small and statistically insignificant. The effect of non-Euro CUs, however, is large and significant. Notably, linear and PPML estimates of the Euro effect increasingly diverge as the sample size grows.
Keywords: Currency Unions; PPML; High-dimensional Fixed Effects (search for similar items in EconPapers)
JEL-codes: C13 C21 F10 F15 F33 (search for similar items in EconPapers)
Pages: 26 pages
New Economics Papers: this item is included in nep-int and nep-sea
References: Add references at CitEc
Citations: View citations in EconPapers (48) Track citations by RSS feed
Downloads: (external link)
https://drive.google.com/file/d/0BxRDnd8cEKndX3l4OFhkNHZIYjg/view?usp=sharing Full text (application/pdf)
Working Paper: The Currency Union Effect: A PPML Re-assessment with High-Dimensional Fixed Effects (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2017_007
Access Statistics for this paper
More papers in School of Economics Working Paper Series from LeBow College of Business, Drexel University Contact information at EDIRC.
Bibliographic data for series maintained by Richard C. Barnett ().