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The Endogenity of the Optimum Currency Area Criteria, Trade, and Labour Market Rigidities: Implications for EMU Enlargement

  • Jarko Fidrmuc

This paper analyzes two channels of business cycle convergence, which are subsequently applied to the EU acceding countries. First, trade intensity and intra-industry trade is found to induce a convergence of business cycles. This finding confirms the OCA endogeneity hypothesis. Second, labor market rigidities implying differences in transmission mechanisms lower the correlation of business cycles between the countries. Both effects are significant in a cross-section of OECD countries. Furthermore, the net effect implies a comparable degree of business cycle harmonization of Central and Eastern European countries with the EU as for the current members in the medium run.

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Paper provided by European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) in its series EUI-RSCAS Working Papers with number 16.

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Date of creation: 15 Oct 2004
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Handle: RePEc:erp:euirsc:p0134
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  1. repec:cup:cbooks:9780521440196 is not listed on IDEAS
  2. Peter B. Kenen, 2000. "Currency Areas, Policy Domains, and the Institutionalization of Fixed Exchange Rates," CEP Discussion Papers dp0467, Centre for Economic Performance, LSE.
  3. David Hummels & James Levinsohn, 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," NBER Working Papers 4389, National Bureau of Economic Research, Inc.
  4. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
  5. Jarko Fidrmuc & Jan Fidrmuc, 2000. "Disintegration and Trade," William Davidson Institute Working Papers Series 353, William Davidson Institute at the University of Michigan.
  6. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  7. Eichengreen, B., 1992. "Should the Maastricht Treaty be Saved?," Princeton Studies in International Economics 74, International Economics Section, Departement of Economics Princeton University,.
  8. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, vol. 91(2), pages 371-375, May.
  9. Todd E. Clark & Eric van Wincoop, 1999. "Borders and business cycles," Staff Reports 91, Federal Reserve Bank of New York.
  10. 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.
  11. Jarko Fidrmuc, 2001. "The Endogeneity of the Optimum Currency Area Criteria, Intraindustry Trade, and EMU Enlargement," LICOS Discussion Papers 10601, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  12. 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.
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