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Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas

  • Stefano Schiavo

    (OFCE)

The paper analyses the relationship between trade, financial integration and business cycle synchronization in the euro area. The introduction of the euro has had a noticeable impact on European financial markets. Evidence that capital market integration exerts a positive effect on output correlation has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries better meet standard OCA criteria; second, it provides European policy-makers with yet another reason to pursue financial integration in the euro area (and in prospective members as well).

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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/9857.

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Date of creation: Feb 2008
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Publication status: Published in Economica, 2008, pp.168-189
Handle: RePEc:spo:wpmain:info:hdl:2441/9857
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