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Title: Is Europe an Optimum Currency Area? Evidence from Regional Data

Author(s): Paul De Grauwe and Wim Vanhaverbeke

Publication Date: May 1991

Keyword(s): Monetary Union and Optimum Currency Area

Programme Area(s): International Macroeconomics

Abstract: In this paper we contrast regional and national data on real exchange rate movements, the growth rates of output and employment, labour mobility and unemployment. We find that asymmetric shocks tend to be more prevalent at the regional than at the national level in Europe. The presumption of the optimum currency area literature holds relatively well, i.e. the adjustment mechanism at the national level involves very little mobility of labour and substantially more real exchange rate variability. At the regional level the opposite holds, although we find some role for real exchange rate adjustments. Finally, we identify two models of regional integration, a `Northern' and a `Southern' one. Implications for monetary union in Europe are drawn.

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Bibliographic Reference

De Grauwe, P and Vanhaverbeke, W. 1991. 'Is Europe an Optimum Currency Area? Evidence from Regional Data'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=555