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

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  • Eichengreen, Barry
  • Bayoumi, Tamim

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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Bibliographic Info

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt5th597st.

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Date of creation: 01 Dec 1996
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Handle: RePEc:cdl:econwp:qt5th597st

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Related research

Keywords: European monetary unification; optimum currency areas; Social and Behavioral Sciences; Arts and Humanities;

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  1. 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.
  2. Tamim Bayoumi, 1994. "A Formal Model of Optimum Currency Areas," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 537-554, December.
  3. 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.
  4. 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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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. La stabilisation macroéconomique en Zone Euro (I)
    by simon.ganem@hotmail.fr (Simon Ganem) in BS Initiative on 2014-02-11 04:08:54
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