Determining global currency bloc equilibria: An empirical strategy based on estimates of anchor currency choice |
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| Affiliation: | 1. Bank of Italy, via Nazionale 91, 00184 Rome, Italy;2. Department of Economics, University of Mannheim, L7, 3-5, 68131 Mannheim, Germany;1. Organisation for Economic Co-operation and Development, Paris, France;2. Harvard University, Cambridge, USA;3. Deutsche Bundesbank, Frankfurt am Main, Germany;1. Department of Accounting and Finance, University of Auckland, Auckland, New Zealand;2. TIAS Business School, Tilburg University, The Netherlands;1. Portland State University, Portland, OR 97207, USA;2. Bank for International Settlements (BIS), Centralbahnplatz 2, CH-4002, Basel, Switzerland |
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| Abstract: | The study presents an empirical strategy for determining global currency bloc equilibria. The procedure includes, first, a nested logit estimation of the combined determinants of currency regime and anchor currency choice; second, a test for a welfare-maximizing regime decision, in which estimates of the relative welfare of alternative regimes are inferred from the results of the first step estimation; and third, taking the path dependency of regime choice into account, a currency bloc equilibrium is derived. In equilibrium, the dollar bloc is somewhat smaller and the euro bloc larger than at present. Counterfactual exercises assess among others the potential for a renminbi bloc. |
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