Currency Unions

Currency Unions

Editors: Alberto Alesina, Robert J. Barro
ISBN: 978-0-8179-2842-1
Publication Date: 10/19/2001
Pages: 86

This book brings together a diverse group of experts on international monetary policy to examine the basic conceptual issues of currency unions and other monetary regimes, including flexible and fixed exchange rates, and assess the available empirical evidence on the performance of these alternative monetary systems. They also draw some policy conclusions on the desirability of currency unions for countries in various circumstances.

Currency Unions reviews the traditional case for flexible exchange rates and countercyclical—that is, expansionary during recessions and contractionary in booms—monetary policy and shows how flexible exchange rate regimes can better insulate the economy from such real disturbances as terms-of-trade shocks. The book also looks at the pitfalls of flexible exchange rates—and why fixed rates, particularly full dollarization—might be a more sensible choice for some emerging-market countries. The contributors also detail the factors that determine the optimal sizes of currency unions, explain how a currency union greatly expands the volume of international trade among its members, and examine the recent implementation of dollarization in Ecuador.

Contributors: Alberto Alesina, Robert J. Barro, Eduardo Borensztein, Christian Broda, Guillermo A. Calvo, Felipe Cespedes, Roberto Chang, Charles Engel, Stanley Fischer, Jeffrey A. Frankel, Maurice Obstfeld, Carmen M. Reinhart, Kenneth Rogoff, Andrew K. Rose, Andres Velasco, Jeromin Zettelmeyer

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Alberto Alesina

Alberto Alesina received his Ph.D. in 1986 from Harvard, where he became a full professor in 1993. He is an editor of the Quarterly Journal of Economics.

Robert J. Barro

Robert J. Barro is a senior fellow at the Hoover Institution and the Paul M. Warburg Professor of Economics at Harvard University. Barro's expertise is in the areas of macroeconomics, economic growth, and monetary theory. He is currently researching the interplay between religion and political economy.


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    Acknowledgments vii
    About the Authors ix
Alberto Alesina
Robert J. Barro
  Introduction xv
Stanley Fischer 1 Ecuador and the
International Monetary Fund
Alberto Alesina
Robert J. Barro
2 One Country, One Currency? 11
Charles Engel
Andrew K. Rose
3 Dollarization and Integration 21
Jeffrey A. Frankel
Andrew K. Rose
4 An Estimate of the Effect of Currency Unions
on Trade and Growth
Guillermo A. Calvo
Carmen M. Reinhart
5 Reflections on Dollarization 39
Christian Broda 6 Coping with Terms of Trade Shocks:
Pegs versus Floats
Eduardo Borensztein
Jeromin Zettelmeyer
7 Monetary Independence in Emerging Markets:
The Role of the Exchange-Rate Regime
Luis Felipe Céspedes
Roberto Chang
Andrés Velasco
8 Dollarization of Liabilities, Financial Fragility,
and Exchange-Rate Policy
Maurice Obstfeld
Kenneth Rogoff
9 Do We Really Need a New
Global Monetary Compact?
    Index 83

The Hoover Institution on War, Revolution and Peace, founded at Stanford University in 1919 by Herbert Hoover, who went on to become the thirty-first president of the United States, is an interdisciplinary research center for advanced study on domestic and international affairs. The views expressed in its publications are entirely those of the authors and do not necessarily reflect the views of the staff, officers, or Board of Overseers of the Hoover Institution.

Hoover Institution Press Publication No. 496 Copyright © 2001 by the Board of Trustees of the Leland Stanford Junior University

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission of the publisher.

First printing 2001

Manufactured in the United States of America

The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48–1984.

Library of Congress Cataloging-in-Publication Data
Currency unions / edited by Alberto Alesina and Robert J. Barro. p. cm.
Based on a conference held at the Hoover Institution in May 2000.
“The present volume includes non-technical summaries of these papers . . .” [Introduction] Includes bibliographical references and index.

ISBN 0-8179-2842-1 (alk. paper)

1. Monetary unions—Congresses. 2. Monetary policy—International cooperation—Congresses. 3. Currency question—Congresses. 4. Debts, External—Congresses. 5. Financial crises—Congresses. 6. International trade—Congresses. 7. International finance—Congresses. 8. International Monetary Fund—Congresses. I. Alesina, Alberto. II. Barro, Robert J.
HG3894 .C87 2001
332.4´566—dc21 2001039204


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