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Is the United States an optimum currency area? an empirical analysis of regional business cycles

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  • Michael A. Kouparitsas

Abstract

This paper develops a statistical model to study the business cycles of the eight U.S. BEA regions. By combining unobserved component and VAR techniques I identify not only common and idiosyncratic sources of innovation, but also common and idiosyncratic responses to common shocks. Using this model, I show, at the usual levels of statistical significance, that U.S. regions deviate significantly from Mundell's notion of an optimum currency area. I identify five core regions that have similar sources of disturbances and responses to disturbances (New England, Mideast, Great Lakes, Rocky Mountains and Far West) and three non-core regions that differ significantly from the core in their sources of disturbances and/or responses to disturbances (Southeast, Plains and Southwest), at business cycle frequencies.

Suggested Citation

  • Michael A. Kouparitsas, 2001. "Is the United States an optimum currency area? an empirical analysis of regional business cycles," Working Paper Series WP-01-22, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-01-22
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    References listed on IDEAS

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    6. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
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    Cited by:

    1. repec:bla:worlde:v:40:y:2017:i:5:p:949-962 is not listed on IDEAS
    2. Elizabeth Wakerly & Byron Scott & James Nason, 2006. "Common trends and common cycles in Canada: who knew so much has been going on?," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 320-347, February.
    3. Michael T. Owyang & Jeremy Piger & Howard J. Wall, 2005. "Business Cycle Phases in U.S. States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 604-616, November.
    4. Grimes, Arthur, 2005. "Regional and industry cycles in Australasia: Implications for a common currency," Journal of Asian Economics, Elsevier, vol. 16(3), pages 380-397, June.
    5. Emilio Espino & Julian Kozlowski & Juan M. Sánchez, 2013. "Regionalization vs. globalization," Working Papers 2013-002, Federal Reserve Bank of St. Louis.
    6. S. Rebelo., 2010. "Real Business Cycle Models: Past, Present, and Future," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
    7. 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.
    8. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    9. Michael T. Owyang & Howard J. Wall, 2004. "Structural breaks and regional disparities in the transmission of monetary policy," Working Papers 2003-008, Federal Reserve Bank of St. Louis.
    10. Arthur Grimes, 2005. "Intra & Inter-Regional Shocks: A New Metric with an Application to Australasian Currency Union," Working Papers 05_03, Motu Economic and Public Policy Research.
    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. Theodore M. Crone, 2004. "A redefinition of economic regions in the U.S," Working Papers 04-12, Federal Reserve Bank of Philadelphia.
    13. Sergio Rebelo, 2005. "Business Cycles," Annals of Economics and Finance, Society for AEF, vol. 6(2), pages 229-250, November.
    14. Arthur Grimes, 2006. "Intra & inter-regional industry shocks: A new metric with application to Australasian currency union," New Zealand Economic Papers, Taylor & Francis Journals, vol. 40(1), pages 23-44.
    15. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters,in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42 Bank for International Settlements.
    16. Theodore M. Crone, 2003. "An alternative definition of economic regions in the U.S. based on similarities in state business cycles," Working Papers 03-23, Federal Reserve Bank of Philadelphia.
    17. Michael A. Kouparitsas, 2002. "Understanding U.S. regional cyclical comovement: How important are spillovers and common shocks?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 30-41.
    18. Chrysanthidou, Efthimia & Gogas, Periklis & Papadimitriou, Theophilos, 2012. "Optimum Currency Areas within the US and Canada a Data Analysis Approach," DUTH Research Papers in Economics 4-2012, Democritus University of Thrace, Department of Economics.
    19. Luís Aguiar-Conraria & Pedro Brinca & Haukur Viðar Guðjónsson & Maria Joana Soares, 2015. "Optimum Currency Area and Business Cycle Synchronization Across U.S. States," NIPE Working Papers 1/2015, NIPE - Universidade do Minho.

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    Keywords

    Business cycles ; Currency convertibility;

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