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The Endogeneity of the Optimum Currency Area Criteria, Intra-industry Trade, and EMU Enlargement

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Jarko Fidrmuc

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Abstract

This article tests the endogeneity hypothesis of optimum currency area (OCA) criteria in a cross-section of OECD countries in the 1990s. It argues that intraindustry trade induces convergence of business cycles, while no direct relation between business cycles and bilateral trade intensity is found. This finding confirms the OCA endogeneity hypothesis, but it underlines the role of trade specialization. Furthermore, the endogeneity of OCA criteria implies a comparable degree of business cycle harmonization of Central and Eastern European countries with the EU as for the current members in the medium run. (JEL F15, F41) Copyright 2004, Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Contemporary Economic Policy.

Volume (Year): 22 (2004)
Issue (Month): 1 (January)
Pages: 1-12
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Handle: RePEc:oup:coecpo:v:22:y:2004:i:1:p:1-12

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fidrmuc, Jan & Fidrmuc, Jarko, 2000. "Disintegration and Trade," CEPR Discussion Papers 2641, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-62, January. [Downloadable!] (restricted)
    Other versions:
  3. Hummels, David & Levinsohn, James, 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 799-836, August. [Downloadable!] (restricted)
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  4. Eduard HOCHREITER & Georg WINCKLER, 1993. "The Advantages of Tying Austria's Hands: The Success of the Hard Currency Strategy," Vienna Economics Papers vie9307, University of Vienna, Department of Economics.
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  5. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December. [Downloadable!] (restricted)
  6. Rudolf Loertscher & Frank Wolter, 1980. "Determinants of intra-industry trade: Among countries and across industries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 116(2), pages 280-293, June. [Downloadable!] (restricted)
  7. Dixit, Avinash, 2000. "A Repeated Game Model of Monetary Union," Economic Journal, Royal Economic Society, vol. 110(466), pages 759-80, October. [Downloadable!] (restricted)
  8. Portes, Richard, 2001. "The Euro and the International Financial System," CEPR Discussion Papers 2955, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "Stability of Monetary Unions: Lessons from the Break-up of Czechoslovakia," Transition Economics Series 10, Institute for Advanced Studies. [Downloadable!]
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  10. Boone, Laurence & Maurel, Mathilde, 1998. "Economic Convergence of the CEECs with the EU," CEPR Discussion Papers 2018, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April. [Downloadable!] (restricted)
  12. Artis, Michael J & Zhang, Wenda, 1995. "International Business Cycles and the ERM: Is there a European Business Cycle?," CEPR Discussion Papers 1191, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Michael Artis, 2003. "Is there a European Business Cycle?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  14. P. B. Kenen, 2000. "Currency Areas, Policy Domains, and the Institutionalization of Fixed Exchange Rates," CEP Discussion Papers 0467, Centre for Economic Performance, LSE. [Downloadable!]
  15. Fidrmuc, Jarko, 1999. "Verification of the New Trade Theory in EU's Trade with CEECs," Economics Series 72, Institute for Advanced Studies. [Downloadable!]
  16. George Kopits, 1999. "Implications of EMU for Exchange Rate Policy in Central and Eastern Europe," IMF Working Papers 99/9, International Monetary Fund.
  17. Rose, Andrew K, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," CEPR Discussion Papers 2329, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Boone, Laurence & Maurel, Mathilde, 1999. "An Optimal Currency Area Perspective of the EU Enlargement to the CEECs," CEPR Discussion Papers 2119, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  19. Cincibuch, Martin & Vávra, David, 2000. "Towards the EMU: A Need For Exchange Rate Flexibility?," Transition Economics Series 17, Institute for Advanced Studies. [Downloadable!]
  20. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jarko Fidrmuc, 2004. "The Endogenity of the Optimum Currency Area Criteria, Trade, and Labour Market Rigidities: Implications for EMU Enlargement," EUI-RSCAS Working Papers 16, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS). [Downloadable!]
  2. Jesús Crespo-Cuaresma & Jarko Fidrmuc & Ronald MacDonald, 2003. "The Monetary Approach to Exchange Rates in the CEECs Relations and Output Performance," Vienna Economics Papers 0313, University of Vienna, Department of Economics. [Downloadable!]
  3. Bartosz Mackowiak, 2005. "How much of the Macroeconomic Variation in Eastern Europe is Attributable to External Shocks?," SFB 649 Discussion Papers SFB649DP2005-061, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  4. Fidrmuc, Jarko & Korhonen, Iikka, 2001. "Similarity of supply and demand shocks between the Euro area and the CEECs," BOFIT Discussion Papers 14/2001, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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  5. Lúcio Vinhas de Souza, 2002. "Trade Effects of Monetary Integration in Large, Mature Economies: A Primer on the European Monetary Union," Kiel Working Papers 1137, Kiel Institute for the World Economy. [Downloadable!]
  6. Carlos Cortinhas, 2005. "Intra-Industry Trade and Business Cycles in ASEAN," NIPE Working Papers 7/2005, NIPE - Universidade do Minho. [Downloadable!]
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  7. Jesús Crespo-Cuaresma & Jarko Fidrmuc & Ronald McDonald, 2004. "The monetary approach to exchange rates in the CEECs," Macroeconomics 0401013, EconWPA. [Downloadable!]
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  8. António Afonso & Davide Furceri, 2007. "Business cycle synchronization and insurance mechanisms in the EU," Working Paper Series 844, European Central Bank. [Downloadable!]
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  9. Iikka Korhonen & Jarko Fidrmuc, 2003. "The euro goes East. Implications of the 2000-2002 economic slowdown for synchronisation of business cycles between the euro area and CEEs," Macroeconomics 0305007, EconWPA. [Downloadable!]
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  10. Julius Horvath, 2004. "Optimum currency area theory: A selective review," Macroeconomics 0401014, EconWPA. [Downloadable!]
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  11. Pieter W. van Foreest & Casper G. de Vries, 2002. "The Forex Regime and EMU Expansion," Tinbergen Institute Discussion Papers 02-010/2, Tinbergen Institute. [Downloadable!]
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  12. Jarko Fidrmuc & Iikka Korhonen, 2006. "Meta-Analysis of the Business Cycle Correlation between the Euro Area and the CEECs," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  13. M. Ayhan Kose & Kei-Mu Yi, 2005. "Can the standard international business cycle model explain the relation between trade and comovement?," Working Papers 05-3, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  14. M. Ayhan Kose & Kei-Mu Yi, 2002. "The trade comovement problem in international macroeconomics," Staff Reports 155, Federal Reserve Bank of New York. [Downloadable!]
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