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The premises and assumptions of monetary integration in Europe against the background of the theory of optimum currency area

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  • Tomasz Łyziak

Abstract

The creation of the Economic and Monetary Union on the 1st January 1999 and the introduction of the common currency euro enlivened the discussion on the subject of the theory of optimum currency area and their practical applications. The opinions appeared that the countries of the euro zone do not fulfill the criteria of optimum currency area, and therefore the conducting of a uniform money policy and an irrevocably stiffening of the currency rates inside this area may considerably hinder the efficient functioning of the particular economies, especially in a situation of asymmetrical disturbances. This article presents against the background of the theories of international economic relations a historical outline of the process of economic integration in Europe. Moreover there are discussed criteria serving to evaluate the optimality of the currency area and also there are compiled the results of empirical research concerning the degree of fulfilling of these criteria by the Euroland countries. The conclusion of the article is the statement that within the euro zone there are economies to a different degree predestined to stiffen the rates of their currencies with respect to the euro and to resign from soverainty in the scope of money policy. The requirements of the optimum currency area are fulfilled to the largest degree by Germany, Austria and Belgium, to the least degree by Finland and Portugal, whereas the remaining countries of the Economic and Monetary Union are situated on intermediate position.

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Article provided by Faculty of Economic Sciences, University of Warsaw in its journal Ekonomia journal.

Volume (Year): 3 (2001)
Issue (Month): ()
Pages:

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Handle: RePEc:eko:ekoeko:3_41

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  1. Bennett T. McCallum, 1999. "Theoretical Issues Pertaining to Monetary Unions," NBER Working Papers 7393, National Bureau of Economic Research, Inc.
  2. Angeloni, Ignazio & Dedola, Luca, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 0004, European Central Bank.
  3. Wacziarg, Romain & Alesina, Alberto, 1999. "Is Europe Going Too Far?," Scholarly Articles 4553012, Harvard University Department of Economics.
  4. Glenn Hoggarth, 1996. "Introduction to Monetary Policy," Handbooks, Centre for Central Banking Studies, Bank of England, number 1.
  5. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
  6. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
  7. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  8. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  9. Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-28.
  10. Lafrance, Robert & St-Amant, Pierre, 1999. "Optimal Currency Areas: A Review of the Recent Literature," Working Papers 99-16, Bank of Canada.
  11. Smaghi, L.B. & Area, C., 1993. "Rating the EC as an Optimal Currency Area," Papers 187, Banca Italia - Servizio di Studi.
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