Working Paper: NBER ID: w9072
Authors: Alberto Alesina; Robert J. Barro; Silvana Tenreyro
Abstract: As the number of independent countries increases and their economies become more integrated, we would expect to observe more multi-country currency unions. This paper explores the pros and cons for different countries to adopt as an anchor the dollar, the euro, or the yen. Although there appear to be reasonably well-defined euro and dollar areas, there does not seem to be a yen area. We also address the question of how trade and co-movements of outputs and prices would respond to the formation of a currency union. This response is important because the decision of a country to join a union would depend on how the union affects trade and co-movements.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| existence of multicountry currency unions (F36) | increase in trade (F19) |
| adopting a common currency (F36) | reduce trade costs (F19) |
| reduce trade costs (F19) | increase trade volumes among member countries (F15) |
| presence of international borders (F55) | impact on trade flows (F69) |
| currency unions (F36) | increase comovement of prices (E39) |
| currency unions (F36) | no systematic relationship with comovement of outputs (F29) |