The new theory of OCA has shifted its focus towards the issues including credibility and effectiveness of monetary policy, endogeneity of OCA, correlation and variation of shocks, character of shocks and their probable impact on an economy, synchronisation of business cycles and alternative commitment mechanisms for policy-makers, conver- gence of economies towards the steady state, trade patterns and speciali- sation in production arising from comparative advantage, various types of frictions prevailing in labour, goods and capital markets, and the role of non-economic political factors in monetary unifications. On exchange rate unification. American Economic Review, 80 3 , — American Economic Review, 88 1 , — Exchange-rate policy in emerging-market economies: No need to say that there is now substantial empirical literature which backs the non-efficient foreign exchange markets hypothesis.

CESifo Economic Studies, 49 1 , — What have we learnt about monetary integration since the maastricht treaty?. Buiter presents a thorough analytical discussion of the theo- retical issues of forming currency areas by using a seven-equation semi- small open economy model with perfect capital mobility. Is EMU more justifiable ex post than ex ante? On the robustness of the trade-inducing effects of trade agreements and currency unions.

Eatwell EdsThe new Palgrave dictionary of money and finance Vol. This leads to a paradox. Journal of International Money and Finance, 27 8— Weltwirtschaftliches Lietrature, 11— A simple model of exchange rate regime choice in small economies.

He gave three examples to illustrate this hypothesis favouring single currency introduction. Economic Systems, 21 11— The case for flexible exchange rates. Beoz theory of optimum currency areas: This forms the basis of the third approach towards an optimal exchange rate regime.


the theory of optimum currency areas a literature review broz

Exchange-rate policy in emerging-market economies: International Finance Section, Department of Economics. The result of this process is higher nominal wages and higher inflation, with same real wages as before.

The balance of payments. Much of the monetary economics literature deals with this issue.

European Economy Report No. Salant EdsEuropean monetary unification and its meaning for the United States pp. Based on the benefit—cost criteria, the theory has been widely used to analyse whether countries should join a mone- tary union or not.

the theory of optimum currency areas a literature review broz

International Economics Section, Department of Economics. The economies of monetary integration.

The theory of optimum currency areas : a literature review – EconBiz

Helpman concludes that the method for choosing among different exchange rate regimes depends on lirerature given literatuer and imperfections. Devaluation does not always have a positive effect on income and output and, sometimes, this effect is Downloaded from rmi. In the two-period general equilibrium model of Helpman and Razina floating exchange rate regime dominates over a fixed exchange rate regime, since the latter reduces the number of assets in the economy.

Economic agents in both countries would buy currenc products produced by the West and more products produced by the East, Downloaded from rmi.

Third, a situation in which there are two countries, the USA and Canada, with independent currencies and two regions, East and West, which run across these two countries.


Open Economies Review, 2 3— Mundell Mundell defined the OCA as the geographic area, and not the national territory, in which the goals of internal balance full employment associ- ated with stable prices, i. This was one of the official motivations behind the EMU project European Commission,which culminated in the forma- tion of the euro.

The theory of optimum currency areas : a literature review

Economic Policy, 1 2— Papers and Proceedings, 37 2— If such a country is hit with a supply shock, excessive wage increases will lead to loss in competitiveness of the company. If, for example, potential members of common curency area do have labour force that is mobile, sufficient price and wage flexibility, ov degree of openess, similar inflation rates and have political will to abandon their own currency and adapt new one, than common monetary policy can be of benefit to all members and thus usefulness of nominal exchange rate adjustments within members is reduced.

Such markets have different approach towards supply shocks. A theory of optimum currency areas. Privredna Kretanja I Ekonomska Politika,53—

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