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Regional cyclical asymmetries in an optimal currency area: an analysis using US state data

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  • Mark D. Partridge
  • Dan S. Rickman

Abstract

Two key assumptions are often used in assessing the feasibility of a common currency area (CCA). First, asymmetric shocks increase the costs of forming a CCA. Second, the US represents a useful benchmark for evaluating a potential CCA. Changes in the asymmetry of US regional cycles, however, are rarely examined. Therefore, this study examines the synchronization of US regional business cycles for 1971--98. The results reveal that US state cyclical asymmetries changed over time, with synchronization appearing to decline by the latter 1980s. This suggests that the US was less likely to fit CCA criteria in the 1990s, which conflicts with its apparent successful monetary-policy experience. Yet, this seeming contradiction can be explained by a tradeoff between the volatility of the common-national business cycle and regional synchronization. Given that the volatility of an area's common shock can change regularly, these findings have implications for the assessment of all CCAs. Copyright 2005, Oxford University Press.

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  • Mark D. Partridge & Dan S. Rickman, 2005. "Regional cyclical asymmetries in an optimal currency area: an analysis using US state data," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 373-397, July.
  • Handle: RePEc:oup:oxecpp:v:57:y:2005:i:3:p:373-397
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    Cited by:

    1. Natalia Bailey & Sean Holly & M. Hashem Pesaran, 2016. "A Two‐Stage Approach to Spatio‐Temporal Analysis with Strong and Weak Cross‐Sectional Dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(1), pages 249-280, January.
    2. Viv B. Hall & C. John McDermott, 2012. "Is there an unobserved components common cycle for Australasia? Implications for a common currency," New Zealand Economic Papers, Taylor & Francis Journals, vol. 46(2), pages 119-141, September.
    3. Beckworth, David, 2010. "One nation under the fed? The asymmetric effects of US monetary policy and its implications for the United States as an optimal currency area," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 732-746, September.
    4. Hasan Engin Duran, 2011. "Short run dynamics of income disparities and regional cycle synchronization," ERSA conference papers ersa11p937, European Regional Science Association.
    5. Lemmens, A. & Croux, C. & Dekimpe, M.G., 2007. "Consumer confidence in Europe : United in diversity," Other publications TiSEM ea8c3268-2c0b-4fcc-9d4a-6, Tilburg University, School of Economics and Management.
    6. 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.
    7. Michael Artis & Christian Dreger & Konstantin Kholodilin, 2011. "What Drives Regional Business Cycles? The Role Of Common And Spatial Components," Manchester School, University of Manchester, vol. 79(5), pages 1035-1044, September.
    8. Shu-Chun Chang, 2014. "Implication for cities of the liberalizing national economies in twenty-first century," Applied Economics, Taylor & Francis Journals, vol. 46(4), pages 400-407, February.
    9. Michael Artis & Toshihiro Okubo, 2011. "The intranational business cycle in Japan," Oxford Economic Papers, Oxford University Press, vol. 63(1), pages 111-133, January.
    10. Alexandra Ferreira-Lopes & Álvaro Pina, 2011. "Business Cycles, Core, and Periphery in Monetary Unions: Comparing Europe and North America," Open Economies Review, Springer, vol. 22(4), pages 565-592, September.
    11. Viv Hall & John McDermott, 2008. "An Unobserved Components Common Cycle For Australia? Implications For A Common Currency," CAMA Working Papers 2008-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    12. Michael Artis & Christian Dreger & Konstantin Kholodilin, 2009. "Common and spatial drivers in regional business cycles," Centre for Growth and Business Cycle Research Discussion Paper Series 118, Economics, The Univeristy of Manchester.
    13. Alexandra Ferreira-Lopes & Tiago Neves Sequeira, 2012. "Business Cycles Association in a Small Monetary Union: The Case of Switzerland," Spatial Economic Analysis, Taylor & Francis Journals, vol. 7(1), pages 9-30, March.
    14. James D. Hamilton & Michael T. Owyang, 2012. "The Propagation of Regional Recessions," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 935-947, November.
    15. Angeliki ANAGNOSTOU & Stephanos PAPADAMOU, 2014. "The Impact Of Monetary Shocks On Regional Output: Evidence From Four South Eurozone Countries," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 39, pages 105-130.
    16. Owyang, Michael T. & Rapach, David E. & Wall, Howard J., 2009. "States and the business cycle," Journal of Urban Economics, Elsevier, vol. 65(2), pages 181-194, March.
    17. Chad R. Wilkerson, 2009. "Recession and recovery across the nation: lessons from history," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-24.
    18. Wall, Howard J., 2013. "The employment cycles of neighboring cities," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 177-185.
    19. Shibaev, Sergei S., 2016. "Recession Propagation in Small Regional Economies: Spatial Spillovers and Endogenous Clustering," Queen's Economics Department Working Papers 274695, Queen's University - Department of Economics.
    20. Sergei Shibaev, 2016. "Recession Propagation in Small Regional Economies: Spatial Spillovers and Endogenous Clustering," Working Papers 1369, Queen's University, Department of Economics.
    21. Ron Martin & Peter Sunley & Ben Gardiner & Peter Tyler, 2016. "How Regions React to Recessions: Resilience and the Role of Economic Structure," Regional Studies, Taylor & Francis Journals, vol. 50(4), pages 561-585, April.
    22. Papageorgiou, Theofanis & Michaelides, Panayotis G. & Milios, John G., 2010. "Business cycles synchronization and clustering in Europe (1960-2009)," Journal of Economics and Business, Elsevier, vol. 62(5), pages 419-470, September.
    23. Magrini Stefano & Gerolimetto Margherita & Duran Hasan Engin, 2013. "Business cycle dynamics across the US states," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-28, April.
    24. Hasan Engin Duran, 2014. "Short-Run Dynamics of Income Disparities and Regional Cycle Synchronization in the U.S," Growth and Change, Wiley Blackwell, vol. 45(2), pages 292-332, June.

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