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Financial integration, GDP correlation and the endogeneity of optimum currency areas

  • Stefano Schiavo

    ()

    (University of Trento)

The paper analyzes 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: we find evidence that capital markets integration exerts a positive effect on output correlation. This in turn has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries fit better standard OCA criteria; second, it provides European policymakers with yet another reason to purse financial integration in the euro area (and in prospective members as well).

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File URL: http://dse.univr.it/RePEc/ver/Wpaper/WP25.pdf
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Paper provided by University of Verona, Department of Economics in its series Working Papers with number 25.

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Length: 43
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:ver:wpaper:25
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