Risk Sharing and the Theory of Optimal Currency Areas: A Re-examination of Mundell 1973
AbstractMundell (1973) argues that a common currency area provides benefits for its members by offering insurance against region-specific shocks. We develop a simple model to analyse the nature of risksharing benefits of a single currency area for emerging market economies, based on Mundell's hypothesis. An important pre-requisite for the risk-sharing benefits of a single currency is that there be limited trade among countries in national-currency denominated bonds. The evidence for emerging markets supports this assumption. In this case, we show that a single currency area may support risk sharing that could not be achieved under floating exchange rates. Based on a simple quantitative evaluation of our model, we show that the implied risk sharing can be substantial.
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.
Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 082000.
Length: 15 pages
Date of creation: Nov 2000
Date of revision:
Contact details of provider:
Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
More information through EDIRC
Find related papers by JEL classification:
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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.:
- Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
- Helpman, Elhanan, 1981.
"An Exploration in the Theory of Exchange-Rate Regimes,"
3445091, Harvard University Department of Economics.
- Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 865-90, October.
- Tesar, Linda L., 1995. "Evaluating the gains from international risksharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 42(1), pages 95-143, June.
- Eichengreen, Barry & Bayoumi, Tamim, 1996.
"Is Asia an Optimum Currency Area? Can It Become One? Regional, Global and Historical Perspectives on Asian Monetary Relations,"
Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele
qt1td5x343, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Barry Eichengreen and Tamim Bayoumi., 1996. "Is Asia an Optimum Currency Area? Can It Become One? Regional, Global and Historical Perspectives on Asian Monetary Relations," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C96-081, University of California at Berkeley.
- Persson, Torsten & Svensson, Lars E. O., 1989.
"Exchange rate variability and asset trade,"
Journal of Monetary Economics, Elsevier,
Elsevier, vol. 23(3), pages 485-509, May.
- Celentani, Marco & Conde-Ruiz, José Ignacio & Desmet, Klaus, 2004.
"Inflation in Open Economies with Complete Markets,"
CEPR Discussion Papers, C.E.P.R. Discussion Papers
4385, C.E.P.R. Discussion Papers.
- Marco Celentani & J. Ignacio Conde-Ruiz & Klaus Desmet, . "Inflation in open economies with complete markets," Working Papers 2004-12, FEDEA.
- Amartya Lahiri & Rajesh Singh & Carlos A. Vegh, 2007.
"Segmented Asset Markets and Optimal Exchange Rate Regimes,"
NBER Working Papers
13154, National Bureau of Economic Research, Inc.
- Lahiri, Amartya & Singh, Rajesh & Vegh, Carlos, 2007. "Segmented asset markets and optimal exchange rate regimes," Journal of International Economics, Elsevier, Elsevier, vol. 72(1), pages 1-21, May.
- Singh, Rajesh & Lahiri, Amartya & Vegh, Carlos A, 2007. "Segmented Asset Markets and Optimal Exchange Rate Regimes," Staff General Research Papers, Iowa State University, Department of Economics 11446, Iowa State University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR).
If references are entirely missing, you can add them using this form.