IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/5677.html
   My bibliography  Save this paper

What Do We Now Know About Currency Unions?

Author

Listed:
  • Artis, Michael

Abstract

The paper presents the text of a lecture given at the Bank of England in December 2005 as the first in a series of lectures in memory of John Flemming. It provides a personal view of what the profession has learnt about currency unions as a result of the establishment and operation of the European Monetary Union. It argues that the salience of business cycle concurrence as a criterion for participation is probably less than used to be understood and for some countries borders on irrelevance. In any case the effects of union upon business cycle concurrence are themselves not obvious. It also appears that, after a period in which very large estimates of the trade effect of currency unions were widespread, more modest estimates are in order. The most unlooked-for effect is probably that which has occurred in the financial markets; country premia within the EMU are very small, offering a means for insurance against asymmetric shocks. Finally, the lessons of another, local, experiment in currency union is examined. But the useful lessons from this experiment (Ecco L?Euro) are found to be limited.

Suggested Citation

  • Artis, Michael, 2006. "What Do We Now Know About Currency Unions?," CEPR Discussion Papers 5677, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5677
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP5677
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    2. K. Farrant & G. Peersman, 2005. "Is the exchange rate a shock absorber or a source of shocks? New empirical evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/285, Ghent University, Faculty of Economics and Business Administration.
    3. Artis, Michael & Ehrmann, Michael, 2006. "The exchange rate - A shock-absorber or source of shocks? A study of four open economies," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 874-893, October.
    4. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
    5. Jeffrey A. Frankel, 2003. "Experience of and Lessons from Exchange Rate Regime in Emerging Economies," NBER Working Papers 10032, National Bureau of Economic Research, Inc.
    6. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
    7. Obstfeld, Maurice, 2002. "Exchange Rates and Adjustment: Perspectives from the New Open- Economy Macroeconomics," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 23-46, December.
    8. Pierfederico Asdrubali & Bent E. Sørensen & Oved Yosha, 1996. "Channels of Interstate Risk Sharing: United States 1963–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1081-1110.
    9. Torres,Francisco & Giavazzi,Francesco (ed.), 1993. "Adjustment and Growth in the European Monetary Union," Cambridge Books, Cambridge University Press, number 9780521440196.
    10. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    11. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 409-436.
    12. Baldwin, Richard E., 2006. "The euro's trade effects," Working Paper Series 594, European Central Bank.
    13. G. Peersman, 2005. "The relative importance of symmetric and asymmetric shocks and the determination of the exchange rate," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/286, Ghent University, Faculty of Economics and Business Administration.
    14. Jacques Mélitz, 2004. "Risk‐sharing and EMU," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 815-840, November.
    15. Alejandro Micco & Ernesto Stein & Guillermo Ordoñez, 2003. "The currency union effect on trade: early evidence from EMU [‘A theoretical foundation for the gravity equation’]," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 315-356.
    16. Berger, Helge & Nitsch, Volker, 2008. "Zooming out: The trade effect of the euro in historical perspective," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1244-1260, December.
    17. Michael Artis, 2003. "Is there a European Business Cycle?," CESifo Working Paper Series 1053, CESifo.
    18. Ronald I. McKinnon, 2004. "Optimum Currency Areas and Key Currencies: Mundell I versus Mundell II," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 689-715, November.
    19. Clarida, Richard & Gali, Jordi, 1994. "Sources of real exchange-rate fluctuations: How important are nominal shocks?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 1-56, December.
    20. George S. Tavlas, 2009. "Optimum‐Currency‐Area Paradoxes," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 536-551, August.
    21. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    22. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 434-448.
    23. Buiter, Willem, 2000. "Optimal Currency Areas: Why Does The Exchange Rate Regime Matter?," CEPR Discussion Papers 2366, C.E.P.R. Discussion Papers.
    24. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
    25. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 08-45.
    26. Sergio de Nardis & Claudio Vicarelli, 2003. "The Impact of Euro on Trade: The (Early) Effect is not so Large," ISAE Working Papers 31, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    27. Gert Peersman, 2011. "The Relative Importance of Symmetric and Asymmetric Shocks: The Case of United Kingdom and Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(1), pages 104-118, February.
    28. Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2005. "Business Cycles in the New EU Member Countries and their Conformity with the Euro Area," Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2005(1), pages 7-41.
    29. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
    30. Vincent Labhard & Michael Sawicki, 2006. "International and intranational consumption risk sharing: the evidence for the United Kingdom and OECD," Bank of England working papers 302, Bank of England.
    31. Giovanni Mastrobuoni & Wioletta Dziuda, 2005. "The Euro Changeover and Its Effects on Price Transparency, and Inflation. Mission Euro, Mission Accomplished!," International Finance 0503003, University Library of Munich, Germany, revised 24 May 2005.
    32. Rodney Thom & Brendan Walsh, 2001. "The Effect of a Common Currency on Trade - Ireland before and after the Sterling Link," Working Papers 200110, School of Economics, University College Dublin.
    33. Mr. Carlo Cottarelli & Mr. Julio Escolano, 2004. "Assessing the Assessment: A Critical Look At the June 2003 Assessment of the United Kingdom'S Five Tests for Euro Entry," IMF Working Papers 2004/116, International Monetary Fund.
    34. Canzoneri, Matthew B & Vallés Liberal, Javier & Viñals, José, 1996. "Do Exchange Rates Move to Address International Macroeconomic Imbalances?," CEPR Discussion Papers 1498, C.E.P.R. Discussion Papers.
    35. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
    36. Charles Engel, 2002. "The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis Of Some New Open Economy Macro Models," Manchester School, University of Manchester, vol. 70(S1), pages 1-15.
    37. Charles Engel, 2002. "The Responsiveness of Consumer Prices to Exchange Rates And the Implications for Exchange-Rate Policy: A Survey Of a Few Recent New Open-Economy..," NBER Working Papers 8725, National Bureau of Economic Research, Inc.
    38. Mario J Crucini & Gregory D. Hess, 1999. "International and Intranational Risk Sharing," CESifo Working Paper Series 227, CESifo.
    39. Farrant, Katie & Peersman, Gert, 2006. "Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 939-961, June.
    40. Hess, Gregory D & Shin, Kwanho, 1997. "International and Intranational Business Cycles," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 93-109, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zeno Rotondi & Giacomo Vaciago, 2007. "Lessons from the ECB Experience: Frankfurt Still Matters!," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(2), pages 147-170, July.
    2. 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.
    3. Oluwole Owoye & Olugbenga A. Onafowora, 2014. "The Economic Impact Analysis of the Euro Currency on Twelve Member Countries of the European Union," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 2(4), pages 229-244.
    4. Joan Costa-i-Font, 2010. "Regional Single Currency Effects on Bilateral Trade with the European Union," LEQS – LSE 'Europe in Question' Discussion Paper Series 26, European Institute, LSE.
    5. Laurissa Mühlich, 2011. "South–South Regional Monetary Cooperation: Potential Gains for Developing Countries and Emerging Markets," Chapters, in: Ulrich Volz (ed.), Regional Integration, Economic Development and Global Governance, chapter 13, Edward Elgar Publishing.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Mongelli, Francesco Paolo & De Grauwe, Paul, 2005. "Endogeneities of optimum currency areas: what brings countries sharing a single currency closer together?," Working Paper Series 468, European Central Bank.
    3. M.J. Artis, 2003. "Reflections on the optimal currency area (OCA) criteria in the light of EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 297-307.
    4. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian T. & Siegel, Stephan, 2013. "The European Union, the Euro, and equity market integration," Journal of Financial Economics, Elsevier, vol. 109(3), pages 583-603.
    5. Mohd Hussain Kunroo & Irfan Ahmad Sofi & Naushad Ali Azad, 2016. "Trade implications of the Euro in EMU countries: a panel gravity analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(2), pages 391-413, May.
    6. Jan Babecky & Oxana Babetskaia-Kukharchuk & Kamil Galuscak & Dana Hajkova & Jaroslav Hermanek & Tomas Holub & Roman Horvath & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Petr Kral & Filip Novot, 2008. "Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2008," Occasional Publications - Edited Volumes, Czech National Bank, number as08 edited by Dana Hajkova, November.
    7. Oluwole Owoye & Olugbenga A. Onafowora, 2014. "The Economic Impact Analysis of the Euro Currency on Twelve Member Countries of the European Union," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 2(4), pages 229-244.
    8. Ansgar Belke & Julia Spies, 2008. "Enlarging the EMU to the east: what effects on trade?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(4), pages 369-389, September.
    9. Jakob De Haan & Robert Inklaar & Richard Jong‐A‐Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
    10. Lane, Philip, 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
    11. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
    12. Katerina Arnostova & Oxana Babecka Kucharcukova & Jan Babecky & Vojtech Belling & Sona Benecka & Jan Bruha & Martin Gurtler & Tomas Holub & Eva Hromadkova & Lubos Komarek & Zlatuse Komarkova & Petr Kr, 2016. "Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2016," Occasional Publications - Edited Volumes, Czech National Bank, number as16 edited by Katerina Arnostova & Lucie Matejkova, November.
    13. Francesco Paolo Mongelli, 2008. "European Economic and Monetary Integration, and the Optimum Currency Area Theory," European Economy - Economic Papers 2008 - 2015 302, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    14. Sofia Gouveia & Leonida Correia, 2008. "Business cycle synchronisation in the Euro area: the case of small countries," International Economics and Economic Policy, Springer, vol. 5(1), pages 103-121, July.
    15. Zsolt Darvas & György Szapáry, 2008. "Euro Area Enlargement and Euro Adoption Strategies," European Economy - Economic Papers 2008 - 2015 304, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    16. Tomas Adam & Oxana Babecka Kucharcukova & Jan Babecky & Vojtech Belling & Sona Benecka & Jan Bruha & Kamil Galuscak & Tomas Holub & Eva Hromadkova & Lubos Komarek & Zlatuse Komarkova & Kamila Kulhava , 2015. "Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2015," Occasional Publications - Edited Volumes, Czech National Bank, number as15 edited by Kamila Kulhava & Lucie Matejkova, November.
    17. Athina Zervoyianni & Athanasios Anastasiou, 2009. "Convergence of shocks and trade in the enlarged European Union," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(1), pages 79-114.
    18. Joan Costa-i-Font, 2010. "Regional Single Currency Effects on Bilateral Trade with the European Union," LEQS – LSE 'Europe in Question' Discussion Paper Series 26, European Institute, LSE.
    19. S颡stien Wälti, 2012. "The myth of decoupling," Applied Economics, Taylor & Francis Journals, vol. 44(26), pages 3407-3419, September.
    20. Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.

    More about this item

    Keywords

    Currency union; Emu; Optimal currency area theory;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F1 - International Economics - - Trade

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5677. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.