The Theory of Optimum Currency Areas, Trade Adjustment and Trade
AbstractThis paper seeks to integrate more closely the theory of optimum currency areas with the theory of international trade. The currency area is considered as a continuous variable ranging from zero to one: zero if there is no enlargement, and some positive value otherwise, corresponding exactly to the percentage of trade in the enlarged area. The benefits of widening a currency area are then treated in the same way as a reduction in transportation costs. The costs of widening a currency area, in turn, are seen as a drop in the speed of adjustment of the terms of trade to their long-run equilibrium level. On this basis it is shown that the marginal benefits of enlarging a currency area fall, the marginal costs rise, and an optimum size arises. This size depends heavily on the optimal composition of the members, however.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 847.
Date of creation: Oct 1993
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Jacques MÃ©litz, 1996. "The theory of optimum currency areas, trade adjustment, and trade," Open Economies Review, Springer, vol. 7(2), pages 99-116, April.
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F15 - International Economics - - Trade - - - Economic Integration
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
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.:
- Mélitz, Jacques, 1991.
"A Suggested Reformulation of the Theory of Optimal Currency Areas,"
CEPR Discussion Papers
590, C.E.P.R. Discussion Papers.
- Jacques MÃ©litz, 1995. "A suggested reformulation of the theory of optimal currency areas," Open Economies Review, Springer, vol. 6(3), pages 281-298, July.
- Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977.
"Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods,"
American Economic Review,
American Economic Association, vol. 67(5), pages 823-39, December.
- R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
- Tamim Bayoumi and Barry Eichengreen., 1992.
"Shocking Aspects of European Monetary Unification,"
Economics Working Papers
92-187, University of California at Berkeley.
- Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
- Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
- Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers 306, C.E.P.R. Discussion Papers.
- Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Demopoulos, George D. & Yannacopoulos, Nicholas A., 2001. "On the optimality of a currency area of a given size," Journal of Policy Modeling, Elsevier, vol. 23(1), pages 17-24, January.
- Giancarlo Corsetti & Paolo Pesenti, 2002.
"Self-Validating Optimum Currency Areas,"
NBER Working Papers
8783, National Bureau of Economic Research, Inc.
- Shu-ki Tsang, 2002. "Optimum Currency Area for Mainland HCina and Hong Kong? Empirical Tests," Working Papers 162002, Hong Kong Institute for Monetary Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.