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Endogeneities of optimum currency areas: what brings countries sharing a single currency closer together?

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  • Mongelli, Francesco Paolo
  • De Grauwe, Paul

Abstract

This paper brings together several strands of the literature on the endogenous effects of monetary integration: i.e., whether sharing a single currency may set in motion forces bringing countries closer together. The start of EMU has spurred a new interest in this debate. Four areas are analysed: the endogeneity of economic integration, in which we look primarily at evidence on prices and trade; the endogeneity of financial integration or equivalently of insurance schemes based on capital markets; the endogeneity of symmetry of shocks; and the endogeneity of product and labour market flexibility. We present diverse arguments and, where possible, explore the incipient empirical literature focussing on the euro area. Our preliminary conclusion is one of moderate optimism. The different endogeneities that exist in the dynamics towards optimum currency areas are at work. How strong these endogeneities are and how quickly they will do their work remains to be seen. JEL Classification: E42, F13, F33, F42

Suggested Citation

  • 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.
  • Handle: RePEc:ecb:ecbwps:2005468
    Note: 1423663
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    More about this item

    Keywords

    Economic and Monetary Integration and EMU; Optimum Currency Area;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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