Price Impacts of Non-Adoption of the Euro for Small European Countries

June 1, 2006

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Format: Chicago

Harald J Anderson, and Sibel Beadle. Price Impacts of Non-Adoption of the Euro for Small European Countries, (USA: International Monetary Fund, 2006) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Debates surrounding the adoption of a common currency have focused on its benefits weighed against the long-term costs of losing monetary independence. These debates have assumed that the penalty for not adopting a common currency is the maintenance of the status quo. This paper uses the Sjaastad model to analyze the price-making power of major currencies with regard to the prices of traded goods in small countries that have not adopted the euro and uses the Bayoumi-Eichengreen OCA index methodology to shed further light on changes in Europe. The empirical evidence suggests that small countries that have not adopted the euro have increasingly seen a change in the determinants of their traded goods prices. This seems to contrast with the experience of small countries that adopted the euro. The results need to be interpreted carefully, given the short time series.

Subject: Currencies, Exchange rates, Monetary unions, Plurilateral trade, Reserve currencies

Keywords: U.S. dollar, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/151
Stock No:

WPIEA2006151
ISBN:

9781451864113
ISSN:

1018-5941

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