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

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  • STEFANO SCHIAVO

Abstract

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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  • Stefano Schiavo, 2008. "Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas," Economica, London School of Economics and Political Science, vol. 75(297), pages 168-189, February.
  • Handle: RePEc:bla:econom:v:75:y:2008:i:297:p:168-189
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    Cited by:

    1. Stefano Magrini & Margherita Gerolimetto & Hasan Engin Duran, 2011. "Understanding the lead/lag structure among regional business cycles," Working Papers 2011_06, Department of Economics, University of Venice "Ca' Foscari".
    2. Nikos Christodoulakis, 2009. "Ten Years of EMU: convergence, divergence and new policy priorities," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 22, Hellenic Observatory, LSE.
    3. Andrew J Swiston, 2010. "Spillovers to Central America in Light of the Crisis; What a Difference a Year Makes," IMF Working Papers 10/35, International Monetary Fund.
    4. Hsu, Chih-Chiang & Wu, Jyun-Yi & Yau, Ruey, 2011. "Foreign direct investment and business cycle co-movements: The panel data evidence," Journal of Macroeconomics, Elsevier, pages 770-783.
    5. António Caleiro, 2011. "Acerca da importância da sincronização do ciclo económico português no contexto europeu," Economics Working Papers 4_2011, University of Évora, Department of Economics (Portugal).
    6. Goggin, Jean & Siedschlag, Iulia, 2009. "International Transmission of Business Cycles Between Ireland and its Trading Partners," Papers WP279, Economic and Social Research Institute (ESRI).
    7. Herbert Buscher & Hubert Gabrisch, 2012. "The synchronization of wage dynamics across EMU members. A test of the endogeneity hypothesis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, pages 327-340.
    8. Rafaelita M. Aldaba & Josef T. Yap, 2009. "Investment and Capital Flows : Implications of the ASEAN Economic Community," Trade Working Papers 23087, East Asian Bureau of Economic Research.
    9. Gabrisch, Hurbert & Orlowski, Lucjan, 2009. "Interest Rate Convergence in the Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields," Working Papers 2009001, Sacred Heart University, John F. Welch College of Business.
    10. João Rebelo Barbosa & Rui Henrique Alves, 2011. "Divergent competitiveness in the eurozone and the optimum currency area theory," FEP Working Papers 436, Universidade do Porto, Faculdade de Economia do Porto.
    11. Nikos Christodoulakis, 2009. "Ten Years Of Emu: Convergence, Divergence And New Policy Priorities," National Institute Economic Review, National Institute of Economic and Social Research, vol. 208(1), pages 86-100, April.
    12. Marc-Alexandre Sénégas, 2010. "La théorie des zones monétaires optimales au regard de l'euro : Quels enseignements après dix années d'union économique et monétaire en Europe ?," Revue d'économie politique, Dalloz, vol. 120(2), pages 379-419.
    13. Claudia Busl & Marcus Kappler, 2013. "Does Foreign Direct Investment Synchronise Business Cycles? Results from a Panel Approach," WWWforEurope Working Papers series 23, WWWforEurope.
    14. Fries, Claudia & Kappler, Marcus, 2015. "Does foreign direct investment synchronise business cycles? Results from a panel approach," ZEW Discussion Papers 15-031, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    15. João Rebelo Barbosa & Rui Henrique Alves, 2011. "The Euro Area Ten Years after Its Creation: (Divergent) Competitiveness and the Optimum Currency Area Theory," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, pages 605-629.
    16. Magrini Stefano & Gerolimetto Margherita & Duran Hasan Engin, 2013. "Business cycle dynamics across the US states," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-28.
    17. Iulia Siedschlag & Gabriele Tondl, 2011. "Regional output growth synchronisation with the Euro Area," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, pages 203-221.
    18. Zaenal Mutaqin & Masaru Ichihashi, 2013. "Widening and Deepening Economic Integration Impact on Bilateral Trade in the Eurozone and ASEAN," IDEC DP2 Series 3-3, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).

    More about this item

    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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