The World Economy
Advance online publication
Wiley-Blackwell Publishing Ltd.
This paper analyses currency union integration by testing whether price levels in member countries possess a common stochastic trend. The trace statistic test for cointegration proposed by (Johansen, 1995) demonstrates the presence of such a trend for most unions. A disaggregated analysis identifies a common stochastic trend for several though fewer than half of country pairs within a union. Some unions such as the Eurozone have small shares of cointegrated country pairs. Yet, the share of cointegrated country pairs is large relative to countries outside currency unions. Comparison to a control group (country pairs where one country belongs to a given union and the other country does not) indicates that the cointegration found within a currency union is a union‐specific trait and not a feature of the individual countries within the union. These results provide an alternative metric to intraunion trade for gauging the extent of currency union integration.
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Whitten, G. W. (2018). Price‐level co‐movements within currency unions: An alternative integration metric. The World Economy. Advance online publication. doi: 10.1111/twec.12639