Honey, the Currency Union Effect on Trade Hasn’t Blown Up

as the value of real bilateral trade between‘countries’ i and j at time t, CU is a dummy variable which is unity if i and j sharethe same currency at time t, Z is a vector of controls given by an augmentedgravity model, c are the associate nuisance coefficients, and is a (hopefully)well-behaved residual. My chief finding was that was large and robust; mypoint estimate was ‹1:2, implying that currency union is associated with atripling (since exp(1.2)ˇ3) of trade.In his paper in this issue, Volker Nitsch provides three pieces of value-added.First he finds and corrects a number of data errors in my original data set. Second,he shows that adding extra controls to my empirical setup, disaggregating bycurrency unions, and adjusting for missing data affects the results. He concludesthat the effect of currency union on trade is smaller than my original estimates,has not been reliably estimated, and may be zero.