Which Single Currency for Western Europe? |
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| Authors: | Ali M Kutan Michael Melvin |
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| Institution: | Kutan: Southern Illinois University, Edwardsville, IL 62026 USA. Tel: 618-692-3473, Email: .;Melvin: Arizona State University, Tempe, AZ 85287 USA. Tel: 602-965-6860, Fax: 965-0748, Email: . We wish to thank Hank Bessembinder, Joe Brada, Jose Mendez, Bettina Peiers, and an anonymous referee who provided helpful comments on an earlier draft. Special thanks go to Mike Ormiston for sharing his knowledge of the stochastic dominance technique employed in this paper. We retain responsibility for any remaining errors. |
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| Abstract: | The Maastricht Treaty calls for a single European money in the third and final stage of European monetary integration. The purpose of this paper is to infer the preferred currency from the point of view of economic agents in each EMS country by ranking the realized distributions of returns from holding foreign currencies. These rankings are obtained using the notion of generalized stochastic dominance. The preferred currency varies with time and the portfolio considered. In all cases, the ECU is not supported as a likely dominant money. |
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