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

Abstract

In this paper we analyze whether "common currency" countries n that is, dollarized and independent currency union countries n 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.

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