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Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas

  • STEFANO SCHIAVO

The paper analyses 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. Evidence that capital market integration exerts a positive effect on output correlation has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries better meet standard OCA criteria; second, it provides European policy-makers with yet another reason to pursue financial integration in the euro area (and in prospective members as well). Copyright (c) The London School of Economics and Political Science 2007.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 75 (2008)
Issue (Month): 297 (02)
Pages: 168-189

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Handle: RePEc:bla:econom:v:75:y:2008:i:297:p:168-189
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