Discussion Paper Details
Please find the details for DP478 in an easy to copy and paste format below:
Title: Is Europe an Optimum Currency Area?
Author(s): Barry Eichengreen
Publication Date: November 1990
Keyword(s): Exchange rates, Factor Mobility, Optimal Currency Area, Real Exchange Rates and Shocks
Programme Area(s): International Macroeconomics
Abstract: An optimum currency area is an economic unit composed of regions affected symmetrically by disturbances and between which labour and other factors of production flow freely. The symmetrical nature of disturbances and the high degree of factor mobility make it optimal to forsake nominal exchange rate changes as an instrument of adjustment and to reap the reduction in transactions costs associated with a common currency. This paper assesses labour mobility and the incidence of shocks in Europe by comparing them with comparable measures for Canada and the United States. Real exchange rates, a standard measure of the extent of asymmetrical disturbances, remain considerably more variable in Europe than within the United States. Real securities prices, a measure of the incentive to reallocate productive capital across regions, appear considerably more variable between Paris and Dusseldorf then between Toronto and Montreal. A variety of measures suggests that labour mobility and the speed of labour-market adjustment remain lower in Europe than in the United States. Thus, Europe remains further than the currency unions of North America from the ideal of an optimum currency area.
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Eichengreen, B. 1990. 'Is Europe an Optimum Currency Area?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=478