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A suggested reformulation of the theory of optimal currency areas

  • Jacques Mélitz

In contrast to conventional analyses of monetary union between two particular countries or sets of countries, this paper treats the possible expansion of a given currency area as a continuous variable ranging from zero to one; zero if there is no expansion and one if all sources of imports and competition in trade are included in the union. The optimal order in which new members are admitted to the union then becomes a central aspect of the problem. Along with other advantages, this approach makes it easier to defend the argument that many nations are too small for form optimal currency areas. The demands upon the origin of the shocks, factor mobility, and political organization are smaller. Copyright Kluwer Academic Publishers 1995

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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 6 (1995)
Issue (Month): 3 (July)
Pages: 281-298

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Handle: RePEc:kap:openec:v:6:y:1995:i:3:p:281-298
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  1. Robert E. Hall, 1970. "Why Is the Unemployment Rate So High at Full Employment?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 369-410.
  2. Hochreiter, Eduard & Winckler, Georg, 1995. "The advantages of tying Austria's hands: The success of the hard currency strategy," European Journal of Political Economy, Elsevier, vol. 11(1), pages 83-111, March.
  3. Eichengreen, Barry, 1990. "Is Europe an Optimum Currency Area?," Department of Economics, Working Paper Series qt40m5g6pp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
  5. Paul R. Masson & Mark P. Taylor, 1993. "Fiscal Policy within Common Currency Areas," Journal of Common Market Studies, Wiley Blackwell, vol. 31(1), pages 29-44, 03.
  6. Fleming, J Marcus, 1971. "On Exchange Rate Unification," Economic Journal, Royal Economic Society, vol. 81(323), pages 467-88, September.
  7. Thomas Willett & Edward Tower, 1970. "Currency areas and exchange-rate flexibility," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 105(1), pages 48-65, September.
  8. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, vol. 39(2), pages 253-274, February.
  9. Robinson, W & Webb, T R & Townsend, M A, 1979. "The Influence of Exchange Rate Changes on Prices: A Study of 18 Industrial Countries," Economica, London School of Economics and Political Science, vol. 46(181), pages 27-50, February.
  10. Vaubel, Roland, 1978. "Real exchange-rate changes in the European community : A new approach to the determination of optimum currency areas," Journal of International Economics, Elsevier, vol. 8(2), pages 319-339, May.
  11. Paul DE GRAUWE & Hilde Heens, 1993. "Real Exchange Rate Variability in Monetary Unions," Discussion Papers (REL - Recherches Economiques de Louvain) 1993015, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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