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Ever Closer to Heaven? An Optimum-Currency-Area Index for European Countries

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Author Info
Barry Eichengreen (Professor of Economics and Political Science, UC Berkeley)
Tamim Bayoumi (International Monetary Fund)

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Abstract

In this paper we develop a procedure for applying the core implications of the theory of optimum currency areas to cross-country data. We demonstrate that these implications find strong empirical support. The relationship between the characteristics of countries to which OCA theory points and the observed behavior of exchange rates seems sufficiently stable and robust to support simple forecasting. Extrapolating the independent variables, we therefore use our exchange rate equations to predict which countries will be best able to support stable exchange rates in the future -- equivalently, which are likely to be best prepared to be among the founding members of Europe's monetary union.

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Publisher Info
Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number 1036.

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Date of creation: 07 Dec 1996
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Handle: RePEc:cdl:ciders:1036

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Related research
Keywords: Optimum currency; exchange rates; international economics;

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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. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Bayoumi, Tamim, 1994. "A Formal Model of Optimum Currency Areas," CEPR Discussion Papers 968, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley. [Downloadable!]
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  4. Paul Grauwe, 1996. "The economics of convergence: Towards monetary union in Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 132(1), pages 1-27, March. [Downloadable!] (restricted)
  5. 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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This page was last updated on 2009-11-26.

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