Working Paper: CEPR ID: DP7824
Authors: JMC Santos Silva; Silvana Tenreyro
Abstract: We critically review the recent literature on currency unions, and discuss the methodological challenges posed by the empirical assessment of their costs and benefits. In the process, we provide evidence on the economic effects of the euro. In particular, and in contrast with estimates of the trade effect of other currency unions, we find that the impact of the euro on trade has been close to zero. After reviewing the costs and benefits, we conclude with some open questions on normative and positive aspects of the theory of currency unions, emphasizing the need for a unified welfare-based framework to weigh their costs and gains.
Keywords: currency union; euro
JEL Codes: F10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Currency unions (F36) | trade among eurozone countries (F36) |
| Currency unions (F36) | capital market integration (F30) |
| Introduction of the euro (F36) | trade among eurozone countries (F36) |
| Introduction of the euro (F36) | diversification of risk (G11) |
| Introduction of the euro (F36) | economic growth (O49) |