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The Endogenity of the Optimum Currency Area Criteria

The Endogenity of the Optimum Currency Area Criteria Abstract A country' suitability for entry into a currency union depends on a number of economic conditions. These include, inter alia, the intensity of trade with other potential members of the currency union, and the extent to which domestic business cycles are correlated with those of the other countries. But international trade patterns and international business cycle correlations are endogenous. This paper develops and investigates the relationship between the two phenomena. Using thirty years of data for twenty industrialised countries, we uncover a strong and striking empirical finding: countries with closer trade links tend to have more tightly correlated business cycles. This content is only available as a PDF. Author notes Longer versions of this paper are available as NBER WP 5700, CEPR DP 1473, and IIES SP 611; the STATA data set is available at http://haas:berkeley:edu/ ∼ arose, as is the long version of the paper. We thank: Shirish Gupta for research assistance; IIES and ECARE for hospitality during the course of writing this paper; Andy Atkeson, Tam Bayoumi, Lars Calmfors, Harris Dellas, Barry Eichengreen, Charles Engel, Harry Flam, Jeff Frieden, Bob Flood, Geoff Garrett, Hans Genberg, Carl Hamilton, Jon Hassler, Pat Kehoe, Rich Lyons, Ron McKinnon, Jacques Melitz, Enrique Mendoza, Andrew Oswald, Torsten Persson, Chris Pissarides, Ron Rogowski, Lars Svensson, Guido Tabellini, Mike Wickens, Holger Wolf, seminar participants at Dartmouth, ESSIM, IIES, the NBER Summer Institute, PEEI, Tel Aviv, Tilburg, USC, and the Swedish Government Commission's Public Hearing on EMU and two anonymous referees for comments; and the National Science Foundation for research support. © Royal Economic Society 1998 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Economic Journal Oxford University Press

The Endogenity of the Optimum Currency Area Criteria

The Economic Journal , Volume 108 (449) – Jul 1, 1998

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References (22)

Publisher
Oxford University Press
Copyright
© Royal Economic Society 1998
ISSN
0013-0133
eISSN
1468-0297
DOI
10.1111/1468-0297.00327
Publisher site
See Article on Publisher Site

Abstract

Abstract A country' suitability for entry into a currency union depends on a number of economic conditions. These include, inter alia, the intensity of trade with other potential members of the currency union, and the extent to which domestic business cycles are correlated with those of the other countries. But international trade patterns and international business cycle correlations are endogenous. This paper develops and investigates the relationship between the two phenomena. Using thirty years of data for twenty industrialised countries, we uncover a strong and striking empirical finding: countries with closer trade links tend to have more tightly correlated business cycles. This content is only available as a PDF. Author notes Longer versions of this paper are available as NBER WP 5700, CEPR DP 1473, and IIES SP 611; the STATA data set is available at http://haas:berkeley:edu/ ∼ arose, as is the long version of the paper. We thank: Shirish Gupta for research assistance; IIES and ECARE for hospitality during the course of writing this paper; Andy Atkeson, Tam Bayoumi, Lars Calmfors, Harris Dellas, Barry Eichengreen, Charles Engel, Harry Flam, Jeff Frieden, Bob Flood, Geoff Garrett, Hans Genberg, Carl Hamilton, Jon Hassler, Pat Kehoe, Rich Lyons, Ron McKinnon, Jacques Melitz, Enrique Mendoza, Andrew Oswald, Torsten Persson, Chris Pissarides, Ron Rogowski, Lars Svensson, Guido Tabellini, Mike Wickens, Holger Wolf, seminar participants at Dartmouth, ESSIM, IIES, the NBER Summer Institute, PEEI, Tel Aviv, Tilburg, USC, and the Swedish Government Commission's Public Hearing on EMU and two anonymous referees for comments; and the National Science Foundation for research support. © Royal Economic Society 1998

Journal

The Economic JournalOxford University Press

Published: Jul 1, 1998

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