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Price Adjustment in Currency Unions: Another Dimension to the Endogeneity of the Optimum Currency Area Criteria?

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  • Michael Bleaney
  • Lin Yin

Abstract

In a rational expectations model, wages and prices should respond more to shocks in currency unions than under adjustable pegs because of the absence of exchange rate adjustment. This is an aspect of the endogeneity of the optimum currency area criteria that has been largely ignored. Empirical evidence from three currency unions tends to suggest some degree of endogeneity of price flexibility, but the rate of adjustment is slow. Self‐selection into currency unions by countries with naturally greater price flexibility does not appear to be a significant factor.

Suggested Citation

  • Michael Bleaney & Lin Yin, 2018. "Price Adjustment in Currency Unions: Another Dimension to the Endogeneity of the Optimum Currency Area Criteria?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 80(4), pages 788-803, August.
  • Handle: RePEc:bla:obuest:v:80:y:2018:i:4:p:788-803
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    File URL: https://doi.org/10.1111/obes.12235
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    Cited by:

    1. Loewald, Christopher & Wörgötter, Andreas, 2019. "Do monetary unions dream of structural reforms?," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2019, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).

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