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Endogeneities of Optimum Currency Areas: What brings Countries Sharing a Single Currency Closer together?

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Author Info
Paul de Grauwe (Leuven University)
Francesco Paolo Mongelli (European Central Bank)

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Abstract

This paper brings together several strands of the literature on the endogenous effects of monetary integration: i.e., whether sharing a single currency may set in motion forces bringing countries closer together. The start of the European Economic and Monetary Union (EMU) has spurred a new interest in this debate. There are four areas that we analyse in this context: the endogeneity of economic integration, in which we look primarily at evidence on prices and trade; the endogeneity of financial integration or equivalently insurance schemes that can be provided by capital markets; the endogeneity of symmetry of shocks and (similarly) at synchronisation of outputs; and the endogeneity of product and labour market flexibility. The paper presents a conceptual framework within which to illustrate such endogeneities. We present diverse arguments and, where possible, explore the incipient empirical literature focussing on the euro area. On the whole, concerning EMU, our preliminary conclusion is one of moderate optimism. The different endogeneities that exist in the dynamics towards optimum currency areas are at work. How strong these endogeneities are and how quickly they do their work remains to be seen.

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Publisher Info
Paper provided by Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro in its series Working Papers de Economia (Economics Working Papers) with number 29.

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Length: 30 pages
Date of creation: Dec 2005
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Handle: RePEc:ave:wpaper:292005

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Related research
Keywords: Optimum Currency Area; Economic and Monetary Integration and EMU;

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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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.:
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Full references

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. Michael Landesmann & Hermine Vidovic & Vladimir Gligorov & Robert Stehrer & Anna Iara, 2008. "Western Balkan Countries: Adjustment Capacity to External Shocks, with a Focus on Labour Markets," Research Reports 352, The Vienna Institute for International Economic Studies, wiiw. [Downloadable!]
  2. Francesco Paolo Mongelli & Juan Luis Vega, 2006. "What effects is EMU having on the euro area and its member countries? An overview," Working Paper Series 599, European Central Bank. [Downloadable!]
  3. Matthias Mohr, 2005. "A Trend-Cycle(-Season) Filter," Econometrics 0508004, EconWPA. [Downloadable!]
    Other versions:
  4. Jean-Marc Figuet & Nikolay Nenovsky, 2006. "Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania," William Davidson Institute Working Papers Series wp810, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  5. Otmar Issing, 2006. "Europe’s hard fix: the Euro area," International Economics and Economic Policy, Springer, vol. 3(3), pages 181-196, December. [Downloadable!] (restricted)
  6. Gabriele Tondl & Iulia Traistaru-Siedschlag, 2006. "Regional growth cycle synchronisation with the Euro Area," Papers WP173, Economic and Social Research Institute (ESRI). [Downloadable!]
  7. Pierre-Richard Agenor & Joshua Aizenman, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," NBER Working Papers 14088, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Robert Inklaar & Richard Jong-A-Pin & Jakob de Haan, 2005. "Trade and Business Cycle Synchronization in OECD Countries - a Re-examination," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. Goggin, Jean & Siedschlag, Iulia, 2009. "International Transmission of Business Cycles Between Ireland and its Trading Partners," Papers WP279, Economic and Social Research Institute (ESRI). [Downloadable!]
  10. Warin, Thierry & Wunnava, Phanindra V. & Janicki, Hubert, 2008. "Testing Mundell’s Intuition of Endogenous OCA Theory," IZA Discussion Papers 3739, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. Enrico Marelli, 2007. "Specialisation and Convergence in European Regions," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(2), pages 149-178, September. [Downloadable!]
  12. Monika Blaszkiewicz-Schwartzman, 2007. "Explaining Exchange Rate Movements in New Member States of the European Union: Nominal and Real Convergence," Money Macro and Finance (MMF) Research Group Conference 2006 144, Money Macro and Finance Research Group. [Downloadable!]
  13. Stefano Schiavo, 2005. "Financial integration, GDP correlation and the endogeneity of optimum currency areas," Working Papers 25, Università di Verona, Dipartimento di Scienze economiche. [Downloadable!]
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  14. Katrin Tinn, 2005. "Optimal research in financial markets with heterogeneous private information a rational expectations model," Working Paper Series 493, European Central Bank. [Downloadable!]
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  15. Balli, Faruk & Sorensen, Bent E., 2007. "Risk Sharing among OECD and EU Countries: The Role of Capital Gains, Capital Income, Transfers, and Saving," MPRA Paper 10223, University Library of Munich, Germany. [Downloadable!]
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