A Currency of One's Own? An Empirical Investigation on Dollarization and Independent Currency Unions

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In this paper we analyze whether common currency' countries that is, dollarized and independent currency union countries have outperformed countries that have a currency of their own. The paper is empirical and estimates jointly the probability of being a common currency country and outcome' equations for growth, volatility and inflation. We find that both type of common currency countries have lower inflation than countries with a domestic currency. Dollarized countries have lower growth and higher volatility than countries with a domestic currency. Currency unions, on the other hand, have higher growth and higher volatility than countries with a currency of their own.

Published: Edwards, Sebastian and I. Igal Magendzo. "Strict Dollarization and Economic Performance: An Empirical Investigation," Journal of Money, Credit and Banking, 2006, v38(1,Feb), 269-282.

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