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The equilibrium approach to optimum currency areas

Author

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  • Filippo Cesarano

    (Banca d'Italia, Ufficio Ricerche Storiche, Roma (ItaIY))

Abstract

This paper contrasts the received view of optimum currency areas with the modernequilibrium approach. Setting Mundell's work against earlier analyses of monetary unions exposes the peculiarities of his theory, embedded in the static Keynesian paradigm. Mundell's hypothesis, constructed on the assumption of interregional factor immobility with regions spanning the country borders, leads to exogenous optimality criteria, which characterized the research program of the following decades (section 1). From the late 1990s, however, several papers emphasized the endogeneity ofoptimum currency area criteria on the basis of the new classical macroeconomics, overturning the traditional approach. Highlighting the implications of the Lucas critique, these contributions point at an alternative view of optimality, bringing the subject again into the realm of equilibrium theory (section 2).

Suggested Citation

  • Filippo Cesarano, 2006. "The equilibrium approach to optimum currency areas," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(237), pages 193-209.
    • Handle: RePEc:psl:bnlqrr:2006:23
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9867/9749
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    References listed on IDEAS

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    Cited by:

    1. Filippo Cesarano, 2006. "Optimum currency areas: a policy view," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(239), pages 317-332.
    2. Filippo Cesarano, 2006. "Optimum currency areas: a policy view," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(239), pages 317-332.
    3. Mogaji, Peter Kehinde, 2016. "Inflation Deviations Assessments of OCA Properties in the WAMZ," MPRA Paper 98825, University Library of Munich, Germany.
    4. Nicola Acocella, "undated". "A tale of two cities: exit policies in Washington and Frankfurt," Working Papers 117/13, Sapienza University of Rome, Metodi e Modelli per l'Economia, il Territorio e la Finanza MEMOTEF.
    5. Mogaji, Peter Kehinde, 2016. "Monetary Integration Tests for the OCA’s Business Cycles Synchronicity Criteria in the WAMZ," MPRA Paper 99066, University Library of Munich, Germany.

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    Keywords

    Currency;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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