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Financial integration, GDP correlation and the endogeneity of optimum currency areas

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  • Stefano Schiavo

    (University of Trento)

Abstract

The paper analyzes the relationship between trade, financial integration and business cycle synchronization in the euro area. The introduction of the euro has had a noticeable impact on European financial markets: we find evidence that capital markets integration exerts a positive effect on output correlation. This in turn has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries fit better standard OCA criteria; second, it provides European policymakers with yet another reason to purse financial integration in the euro area (and in prospective members as well).

Suggested Citation

  • Stefano Schiavo, 2005. "Financial integration, GDP correlation and the endogeneity of optimum currency areas," Working Papers 25/2005, University of Verona, Department of Economics.
    • Handle: RePEc:ver:wpaper:25/2005
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    More about this item

    Keywords

    business cycle; EMU; endogeneity; integration; optimum currency areas;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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