Ireland has participated in two currency unions-a bilateral union with the UK that lasted until 1979 and as a founder member of European Monetary Union (EMU) that began in 1999. This article investigates whether currency unions have influenced Irish trade patterns.

Smooth adjustment to real exchange rate shifts is one of the major challenges facing the Irish economy under EMU. Rather than assume purchasing power parity, the long-run real exchange rate is modelled as time-varying, being determined by relative output levels, the terms of trade and the net...