In a fixed exchange rate system, any expectation that the peg may be abandoned will normally be reflected in an interest rate differential between instruments denominated in domestic and anchor currencies: the possibility of a revaluation will drive domestic interest rates below those in the...

Trade within currency unions is much larger than outside of currency unions, even after factoring in many relevant variables. The existing empirical evidence is based on reduced form models of trade, and therefore indicates correlation between but neither causality nor mechanism. This paper...