Currency Blocs in the 21st Century
57 Pages Posted: 16 Oct 2012
Date Written: October 12, 2012
Based on a classification of countries and territories according to their regime and anchor currency choice, the study considers the two major currency blocs of the present world. A nested logit regression suggests that long-term structural economic variables determine a given country’s currency bloc affiliation. The dollar bloc differs from the euro bloc in that there exists a group of countries that peg temporarily to the US dollar without having close economic affinities with the bloc. The estimated parameters are consistent with an additive random utility model interpretation. A currency bloc equilibrium in the spirit of Alesina and Barro (2002) is derived empirically.
Keywords: anchor currency choice, nested logit, exchange rate regime classification, additive random utility model, currency bloc equilibrium
JEL Classification: F02, F31, F33, E42, C25
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