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The Endogeneity of optimum currency area criteria, intraindustry trade and EMU enlargement

  • Fidrmuc, Jarko



This paper tests an endogeneity hypothesis of optimum currency area (OCA) criteria (Frankel and Rose, 1998) on a cross-section of OECD countries between 1990 and 1999. The findings indicate that convergence of business cycles relates to intra-industry trade, but has no direct relation between business cycles and bilateral trade intensity. As far as intra-industry trade is positively correlated with trade intensities, this result confirms the OCA endogeneity hypothesis. The endogeneity of OCA linkage criteria implies extensive business cycle harmonization between CEECs and EU countries in the medium term.

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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 8/2001.

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Length: 33 pages
Date of creation: 22 Aug 2001
Date of revision:
Handle: RePEc:hhs:bofitp:2001_008
Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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  1. Fidrmuc, Jarko & Fidrmuc, Jan, 2001. "Disintegration and trade," ZEI Working Papers B 24-2001, ZEI - Center for European Integration Studies, University of Bonn.
  2. Tamim Bayoumi and Barry Eichengreen., 1996. "Ever Closer to Heaven? An Optimum-Currency-Area Index for European Countries," Center for International and Development Economics Research (CIDER) Working Papers C96-078, University of California at Berkeley.
  3. Richard Portes, 2002. "The Euro and the International Financial System," Chapters, in: EMU and Economic Policy in Europe, chapter 13 Edward Elgar.
  4. 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.
  5. Peter B. Kenen, 2000. "Currency areas, policy domains, and the institutionalization of fixed exchange rates," LSE Research Online Documents on Economics 20170, London School of Economics and Political Science, LSE Library.
  6. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "Stability of monetary unions: Lessons from the break-up of Czechoslovakia," ZEI Working Papers B 17-1999, ZEI - Center for European Integration Studies, University of Bonn.
  7. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December.
  8. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-62, January.
  9. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  10. Willem Buiter & Clemens Grafe, 2001. "Central Banking and the Choice of Currency Regime in Accession Countries," Revue d'Économie Financière, Programme National Persée, vol. 6(1), pages 287-318.
  11. Cincibuch, Martin & Vávra, David, 2000. "Towards the EMU: A Need For Exchange Rate Flexibility?," Transition Economics Series 17, Institute for Advanced Studies.
  12. Fidrmuc, Jarko, 1999. "Verification of the New Trade Theory in EU's Trade with CEECs," Economics Series 72, Institute for Advanced Studies.
  13. Hochreiter, Eduard & Winckler, Georg, 1995. "The advantages of tying Austria's hands: The success of the hard currency strategy," European Journal of Political Economy, Elsevier, vol. 11(1), pages 83-111, March.
  14. David Hummels & James Levinsohn, 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 799-836.
  15. Boone, Laurence & Maurel, Mathilde, 1998. "Economic Convergence of the CEECs with the EU," CEPR Discussion Papers 2018, C.E.P.R. Discussion Papers.
  16. Boone, Laurence & Maurel, Mathilde, 1999. "An Optimal Currency Area Perspective of the EU Enlargement to the CEECs," CEPR Discussion Papers 2119, C.E.P.R. Discussion Papers.
  17. Dixit, Avinash, 2000. "A Repeated Game Model of Monetary Union," Economic Journal, Royal Economic Society, vol. 110(466), pages 759-80, October.
  18. Michael Artis, 2003. "Is there a European Business Cycle?," CESifo Working Paper Series 1053, CESifo Group Munich.
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