Currency unions and trade: the effect is large

Authors: Andrew K. Rose
Discussants: Patrick Honohan

I have always maintained that the measured effect of a single currency on trade appears implausibly large, but I am not convinced by Torsten Persson’s diagnosis and proposed solution. I apply a variety of estimation techniques to a new larger data set, where many more instances of currency union creation and abandonment make it possible to rely on time-series as well as cross-sectional evidence. The results are similar to my earlier ones: the effect of a single currency on trade is large and can be estimated precisely.