According to Mongelli (2002) this notion has shifted the overall balance in favour of currency unions
vis-a-vis maintaining an independent monetary policy.
The relevance of the currency is not only because it will be the single currency of an economic bloc that has a GDP of $388 billion and controls 45 percent of the world's known oil reserves, but also because currency unions
invariably increase the levels of intraregional trade", it said.
Quantifying the impact of currency unions
and exchange rate uncertainty on trade is thus an empirical exercise of importance.
In Section 2 I provide a general discussion about currency unions
, and in Section 3 I document the behavior of inflation before and after the Euro was adopted using twelve-month core CPI inflation data from the eleven countries that adopted the common currency in January 1999.
Around 40 per cent of the UK's exports go to the euro area but we didn't join the euro, because the risks of unstable currency unions
vastly outweigh the benefits.
The stimulus to trade from the adoption of a common currency would be more limited than has been the case with other currency unions
, for two main reasons.
This article surveys recent thinking on the topic of currency unions
, separating out and presenting the lessons that apply to the New Zealand context.
Rose uses a gravity model and a panel dataset that includes bilateral observations spanning the period from 1970-90 for 186 countries to assess the separate effects of exchange rate volatility and currency unions
on international trade.
The relevance of this estimate for the EMU was questioned on the grounds that it largely reflects the experiences of less developing countries in multilateral currency unions
or in "hub and spoke" relations with a large anchor country.
This study is an attempt to partially address this issue by examining the interaction terms associated with currency unions
and looking at the square and cube of the GDP variables.