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Regional cyclical asymmetries in an optimal currency area: an analysis using US state data

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  • Mark D. Partridge
  • Dan S. Rickman

Abstract

Two key assumptions are often used in assessing the feasibility of a common currency area (CCA). First, asymmetric shocks increase the costs of forming a CCA. Second, the US represents a useful benchmark for evaluating a potential CCA. Changes in the asymmetry of US regional cycles, however, are rarely examined. Therefore, this study examines the synchronization of US regional business cycles for 1971--98. The results reveal that US state cyclical asymmetries changed over time, with synchronization appearing to decline by the latter 1980s. This suggests that the US was less likely to fit CCA criteria in the 1990s, which conflicts with its apparent successful monetary-policy experience. Yet, this seeming contradiction can be explained by a tradeoff between the volatility of the common-national business cycle and regional synchronization. Given that the volatility of an area's common shock can change regularly, these findings have implications for the assessment of all CCAs. Copyright 2005, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 57 (2005)
Issue (Month): 3 (July)
Pages: 373-397

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Handle: RePEc:oup:oxecpp:v:57:y:2005:i:3:p:373-397

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Cited by:
  1. Michael T. Owyang & David E. Rapach & Howard J. Wall, 2008. "States and the business cycle," Working Papers 2007-050, Federal Reserve Bank of St. Louis.
  2. Michael Artis & Christian Dreger & Konstantin Kholodilin, 2011. "What Drives Regional Business Cycles? The Role Of Common And Spatial Components," Manchester School, University of Manchester, vol. 79(5), pages 1035-1044, 09.
  3. Hasan Engin Duran, 2011. "Short run dynamics of income disparities and regional cycle synchronization," ERSA conference papers ersa11p937, European Regional Science Association.
  4. Papageorgiou, Theofanis & Michaelides, Panayotis G. & Milios, John G., 2010. "Business cycles synchronization and clustering in Europe (1960-2009)," Journal of Economics and Business, Elsevier, vol. 62(5), pages 419-470, September.
  5. Alexandra Ferreira Lopes & Álvaro M. Pina, 2008. "Business Cycles, Core and Periphery in Monetary Unions: Comparing Europe and North America," Working Papers 2008/21, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  6. Wall, Howard J., 2011. "The Employment Cycles of Neighboring Cities," MPRA Paper 29410, University Library of Munich, Germany.
  7. James D. Hamilton & Michael T. Owyang, 2009. "The propagation of regional recessions," Working Papers 2009-013, Federal Reserve Bank of St. Louis.
  8. Michael Artis & Christian Dreger & Konstantin Kholodilin, 2009. "Common and Spatial Drivers in Regional Business Cycles," SERC Discussion Papers 0022, Spatial Economics Research Centre, LSE.
  9. Beckworth, David, 2010. "One nation under the fed? The asymmetric effects of US monetary policy and its implications for the United States as an optimal currency area," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 732-746, September.
  10. Chad R. Wilkerson, 2009. "Recession and recovery across the nation: lessons from history," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-24.

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