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Do Emu Countries Constitute an Optimum Currency Area? An Empirical Test of the Generalised Purchasing Power Parity Hypothesis

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  • Konstantinos Mouratidis

    (South Bank University, London , UK)

Abstract

This paper makes use of Generalised Purchasing Power Parity based on the Johansen cointegration technique to examine the issue of Optimum Currency Area (OCA) in five European Monetary System (EMS) countries: France, Greece, Italy, Portugal and Spain. It evaluates the degree of asymmetry in different sub-periods in terms of four (i.e. n-1) equilibria. The existence of n-1 equilibria implies the adoption of a common monetary policy. The empirical results indicate that the only period that these countries constituted an OCA was during 1991-1998. However, this result is the exception rather than the rule since estimation of a more extended period (i.e. 1986-1998) rejects the hypothesis of an OCA.

Suggested Citation

  • Konstantinos Mouratidis, 2001. "Do Emu Countries Constitute an Optimum Currency Area? An Empirical Test of the Generalised Purchasing Power Parity Hypothesis," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 4(2), pages 49-70, November.
    • Handle: RePEc:zag:zirebs:v:4:y:2001:i:2:p:49-70
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    Cited by:

    1. Daniele Antonucci & Alessandro Girardi, 2005. "Structural changes and deviations from the PPP within the Euro Area," ISAE Working Papers 57, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).

    More about this item

    Keywords

    Generalized PPP; EU; Real exchange rate;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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