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

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  • STEFANO SCHIAVO

Abstract

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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  • Stefano Schiavo, 2008. "Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas," Economica, London School of Economics and Political Science, vol. 75(297), pages 168-189, February.
    • Handle: RePEc:bla:econom:v:75:y:2008:i:297:p:168-189
    DOI: 10.1111/j.1468-0335.2007.00598.x
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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