{"id":1955,"date":"2020-03-04T09:33:37","date_gmt":"2020-03-04T09:33:37","guid":{"rendered":"https:\/\/bschool.nus.edu.sg\/dean\/?p=1955"},"modified":"2020-03-04T09:33:37","modified_gmt":"2020-03-04T09:33:37","slug":"response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879","status":"publish","type":"post","link":"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/","title":{"rendered":"Response to \u201cDollarization and Trade\u201d by Michael Klein (NBER WP #8879)"},"content":{"rendered":"

Andrew K. Rose, UC Berkeley<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

Summary<\/h2>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0This paper shows that my estimate of the effect of currency union on trade is significantly lower (and insignificantly different from zero) for the developing countries that unilaterally use the US dollar.\u00a0\u00a0It also shows that the coefficient on a dummy for a dollar fix is statistically indistinguishable from that on dollarization.<\/p>\n

Analysis<\/strong><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0While I remain sympathetic to the thrust of the paper, it continues to strike me as a small project.\u00a0\u00a0This is increasingly true since there have been some recent developments of interest, particularly in\u00a0Europe\u00a0where data on EMU is starting to be analyzed.<\/p>\n

Big<\/h2>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0I\u2019ve said if before, and I\u2019ll say it again: I’m not sure what to make of your results.\u00a0 On the one hand, it’s clear that one can find cuts of the data for which the CU effect isn’t there.\u00a0 On the other hand, since the effect seems large in the aggregate (as you yourself find), the question is: what makes it stronger here and weaker there?\u00a0 That’s the question of interest (I think), and one that you don’t really address.\u00a0 I think if we really want to understand the sensitivity of the result, that’s at least the question to be asking.\u00a0 As it is, I’m not sure what I learn, other than there are cases where the CU effect is big and somewhere it is small.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Another thing that I\u2019d never really noticed before.\u00a0\u00a0I think you have to work harder to distinguish between economic and statistical significance.\u00a0\u00a0Your most important results are in Table 3.\u00a0\u00a0Now column II has a point estimate of .44 with a p-value of .13.\u00a0\u00a0Even ignoring other econometric issues (selection bias, pre-filtering, etc.), a point estimate of .44 means that currency union with the US raises trade by exp(.44)-1=55%, which is certainly economically large, even if it\u2019s statistically marginal.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0There are very few CU observations, so one eliminates them at one\u2019s peril (if they\u2019re the main object of interest).\u00a0\u00a0But that\u2019s what you do by eliminating multilateral CUs, developing country CUs, older data, and so forth.\u00a0\u00a0Why\u00a0should<\/em>\u00a0one look at trade only between the\u00a0US\u00a0and another country?\u00a0\u00a0Do we distrust other bilateral trade observations?\u00a0\u00a0Are they irrelevant?\u00a0\u00a0Do we really learn nothing from currency unions that we see elsewhere?\u00a0\u00a0That\u2019s key to your paper, and yet you don\u2019t specify convincingly why your sample restriction is appropriate.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0In my paper with Glick we use 217 trading partners; but you use our data set and only employ 165.\u00a0\u00a0Since the small are more likely to be in CUs, what\u2019s up?\u00a0\u00a0Also, why throw away the pre-1974 data?\u00a0\u00a0I do not find your motivation compelling.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0This paper is also starting to feel a little old-fashioned.\u00a0\u00a0A few years ago when\u00a0El Salvador,\u00a0Guatemala, and\u00a0Ecuador\u00a0were all\u00a0dollarizing, this seemed more relevant.\u00a0\u00a0(Alternatively, perhaps you should update the data set and focus more on the newly\u00a0dollarized.)\u00a0\u00a0But now the issues are more interesting, I think, in\u00a0Europe.\u00a0\u00a0There are a few places circulating which look at EMU data (the IADB one is most well-known), and that\u2019s got to be the frontier with 10 smaller central Europeans in the process of accession.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0One final thing.\u00a0\u00a0The thrust of your argument is that the currency union effect on trade is heterogeneous.\u00a0\u00a0I continue to think that it would be more compelling if you could parameterize a relationship for that heterogeneity (e.g., dyads with different sizes have a small CU effect).\u00a0\u00a0It would be even better if that heterogeneity varied along a dimension of theoretical interest in the optimum currency area literature.<\/p>\n

Small<\/strong><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0The references should be updated.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0There\u2019s no guarantee that sub-samples give more precise estimates (as stated on p 2), and they don\u2019t (judged by confidence intervals) in your analysis.\u00a0\u00a0I think you mean more relevant.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Some of the paper is hard to understand (such as the abstract!).\u00a0\u00a0Again: at the top of p3: the US accounts for 60% of the CUs with industrial countries; Australia accounts for another 25%, but it\u2019s the \u201conly industrial country \u2026\u201d\u00a0\u00a060% + 25% \u2260 100%, so this should be rewritten.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Why should one expect larger CU estimates to result from\u00a0dollarizers, as stated in the middle of p3?\u00a0\u00a0I do not understand that paragraph.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0You\u2019ve forgotten NZ-UK in note 7.<\/p>\n

What estimation technique is used in the paper?<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Column\u00a0I.b\u00a0on p8 is very ad-hoc and smacks of data mining.\u00a0\u00a0I suggest you eliminate it.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0To compare fixes with CUs, it\u2019s natural to use the pre-1974 data.\u00a0\u00a0You should consider this strongly.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Your concluding sentence is way too strong.<\/p>\n

\n","protected":false},"excerpt":{"rendered":"

Andrew K. Rose, UC Berkeley \u00a0 Summary \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0This paper shows that my estimate of the effect of currency union on trade is significantly lower (and insignificantly different from zero) for the developing countries that unilaterally use the US dollar.\u00a0\u00a0It also shows that the coefficient on a dummy for a dollar fix is statistically indistinguishable from […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-1955","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\nResponse to \u201cDollarization and Trade\u201d by Michael Klein (NBER WP #8879) - Dean<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Response to \u201cDollarization and Trade\u201d by Michael Klein (NBER WP #8879)\" \/>\n<meta property=\"og:description\" content=\"Andrew K. Rose, UC Berkeley \u00a0 Summary \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0This paper shows that my estimate of the effect of currency union on trade is significantly lower (and insignificantly different from zero) for the developing countries that unilaterally use the US dollar.\u00a0\u00a0It also shows that the coefficient on a dummy for a dollar fix is statistically indistinguishable from […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/\" \/>\n<meta property=\"og:site_name\" content=\"Dean\" \/>\n<meta property=\"article:published_time\" content=\"2020-03-04T09:33:37+00:00\" \/>\n<meta name=\"author\" content=\"bizkjo\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"bizkjo\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/\",\"url\":\"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/\",\"name\":\"Response to \u201cDollarization and Trade\u201d by Michael Klein (NBER WP #8879) - Dean\",\"isPartOf\":{\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/#website\"},\"datePublished\":\"2020-03-04T09:33:37+00:00\",\"dateModified\":\"2020-03-04T09:33:37+00:00\",\"author\":{\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/#\/schema\/person\/8d7b3bf968314863c2b00f88e22f2eb8\"},\"breadcrumb\":{\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/bschool.nus.edu.sg\/dean\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Response to \u201cDollarization and Trade\u201d by Michael Klein (NBER WP #8879)\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/#website\",\"url\":\"https:\/\/bschool.nus.edu.sg\/dean\/\",\"name\":\"Dean\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/bschool.nus.edu.sg\/dean\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/#\/schema\/person\/8d7b3bf968314863c2b00f88e22f2eb8\",\"name\":\"bizkjo\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/bschool.nus.edu.sg\/dean\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/8a4789f476dc5f28ae606fa949d5c251?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/8a4789f476dc5f28ae606fa949d5c251?s=96&d=mm&r=g\",\"caption\":\"bizkjo\"},\"url\":\"https:\/\/bschool.nus.edu.sg\/dean\/author\/bizkjo\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Response to \u201cDollarization and Trade\u201d by Michael Klein (NBER WP #8879) - Dean","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/bschool.nus.edu.sg\/dean\/2020\/03\/04\/response-to-dollarization-and-trade-by-michael-klein-nber-wp-8879\/","og_locale":"en_US","og_type":"article","og_title":"Response to \u201cDollarization and Trade\u201d by Michael Klein (NBER WP #8879)","og_description":"Andrew K. 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