Frankel and Rose’s Introduction to the Endogeneity of Optimality: A Model Limited to the European Monetary Experience

This article discusses Frankel and Rose’s (1997, 1998) introduction to endogeneity, which was the result of scrutinizing the optimal currency area (OCA) theory through the evaluative lens of European monetary integration and unification in the 1990s. It cannot be generalized to another monetary union. The development of endogeneity interrelates five different criteria (common currency; transaction costs; commercial integration; economic convergence; and diversification of production) to argue that the introduction of a common currency leads to economic convergence among the participating countries. Frankel and Rose’s choice of analytic criteria arises from empirical studies on European monetary unification, following the OCA framework. The empirical studies found to have influenced the authors can be divided into three themes: the microeconomic benefits of a common currency; the optimality of European countries; and adjustment mechanisms. However, as shown by the selection of certain criteria, the influence of the Emerson report (1990), and the price-stability orientation of fiscal and monetary policies, their proposal only works within the monetary and economic conditions of the future eurozone area.

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The Development of the Ems

National Institute Economic Review ◽

10.1177/002795018210200105 ◽

1982 ◽

Vol 102 ◽

pp. 52-62

Author(s):

S.A.B. Page

Keyword(s):

European Monetary System ◽

Economic Conditions ◽

European Monetary ◽

Short Term ◽

Monetary Policies ◽

The Third ◽

Currency Area ◽

Monetary System ◽

Exchange Rate Management ◽

The One

The European Monetary System is a joint currency area made up of countries which have not abandoned independent fiscal and monetary policies. This article discusses how it has survived the difficulties normally expected for such an arrangement, in its first three and a half years. The EMS is in modified form a continuation of the joint exchange rate management in which various members of the EC have participated since 1970. The first section summarises the previous experience and attempts to explain why the EMS was introduced, how it was to differ from the earlier arrangements, and what its purposes were. These were a mixture of fairly precise economic targets, longer term economic objectives, and a more diffuse set of beliefs about how the EC should develop and how technical cooperation can contribute to more fundamental agreement. The second section analyses how, on the one hand, the existing characteristics of the present members' economies, and particularly of trade among them, and, on the other, their economic conditions and policies in this period have contributed to the survival of the EMS. The third section examines the performance of the member countries against the specific original goals and finds achievements in the first group of targets, the most short-term; little evidence so far of progress in the second; but perhaps some success in the third, although the nature of these objectives makes judgement difficult.

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European Currency Union and the EMS

National Institute Economic Review ◽

10.1177/002795019013200105 ◽

1990 ◽

Vol 132 ◽

pp. 59-66 ◽

Cited By ~ 5

Author(s):

Ray Barrell

Keyword(s):

Monetary Union ◽

Monetary Integration ◽

External Shocks ◽

European Monetary ◽

Monetary Policies ◽

Oil Reserves ◽

Shock Absorbers ◽

Structural Differences ◽

The Individual ◽

Delors Report

The Delors report on monetary union in Europe has enlivened the debate on European monetary integration. We would argue that the debate has avoided one of the major issues it should be addressing. There has been very little discussion of the performance of a monetary union when there are external shocks. It is not obvious that a monetary union would cope better with external shocks than would the individual components of the union if they were free to respond. Both exchange-rate and monetary policies can be seen as shock absorbers. Their use can reflect the structural differences between economies, allowing both for differences in comparative advantage that arise from natural endowments such as oil reserves and for differences in wage and price behaviour which, although not immutable, may take some time to remove.

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The Case of European Monetary Integration and its Former Hegemon

German Economic Review ◽

10.1111/geer.12001 ◽

2013 ◽

Vol 14 (1) ◽

pp. 2-14 ◽

Cited By ~ 2

Author(s):

Mojmír Hampl

Keyword(s):

Integration Method ◽

Monetary Integration ◽

European Monetary ◽

Currency Area ◽

Convergence And Divergence ◽

Set Up ◽

Integration Project

Abstract There is no historical precedent for the institutional set-up of the eurozone. However, it is an arrangement that could not and cannot escape the universal laws and principles of economics. This article tries to look generally at the consequences of this integration project from the perspective of the former monetary hegemon, Germany, whose hegemony largely ended as a result of the monetary integration method chosen. Those consequences are, of course, more apparent in bad times than they were in good times. We then specifically examine the problem of convergence and divergence within a currency area and discuss the issue of competitive devaluation. In the conclusion, we try to formulate the fundamental dilemma faced by the former monetary hegemon. Its solution will affect those inside and outside the integration project.

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SOME THEORETICAL ASPECTS OF ECONOMIC INTEGRATION

Journal Human Research in Rehabilitation ◽

10.21554/hrr.091711 ◽

2017 ◽

Vol 7 (2) ◽

pp. 97-105

Author(s):

Alem Merdić ◽

◽

Hasan Mahmutović ◽

Keyword(s):

Free Trade ◽

Economic Integration ◽

European Monetary Union ◽

Economic Benefits ◽

Monetary Integration ◽

European Monetary ◽

Currency Area ◽

Conceptual Definition ◽

Definition Of ◽

Benefits And Costs

One of the basic links of the process of globalization are economic integrations. The aim of this paper is to systematize theoretical achievements and to review the forms, effects and conditions for connecting countries motivated by economic benefits. In addition to the theoretical review of the conceptual definition of economic integration, the focus is on the levels of economic integration from the free-trade zone to the monetary and fiscal union, explaining the specificity of each of the mentioned levels. Considering that the connection between countries always raises the question of the benefits and costs of connection, the special emphasis in this paper is placed on the potential effects for free trade. Finally, the greatest contribution of this paper is the systematization and theoretical review of the theory of optimal currency area and monetary integration, which is especially significant for the European soil, taking into account the already established European Monetary Union.

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Optimum currency areas, real and nominal convergence in the European Union

Notas Económicas ◽

10.14195/2183-203x_42_1 ◽

2015 ◽

pp. 7-28 ◽

Cited By ~ 1

Author(s):

João Sousa Andrade ◽

António Portugal Duarte

Keyword(s):

Interest Rates ◽

Monetary Integration ◽

The European Union ◽

European Monetary ◽

Currency Area ◽

Real Convergence ◽

Convergence Process ◽

Fractional Differential ◽

Optimum Currency ◽

Differential Process

It is well known and widely accepted by economists that the characteristics of the countries of the European Monetary Union (EMU) created in 1999 did not match the requirements of an Optimum Currency Area (OCA). The only criteria for membership of the EMU were nominal. A strict level of convergence in inflation and interest rates was imposed. In addition to the nominal convergence, a process of convergence of nominal and real incomes in the new monetary area was expected to be generated with the monetary integration. After summarizing the criteria for a successful currency area in the context of the OCA theory, we study the real and nominal convergence process for an older group of countries (11) to establish whether or not these countries satisfy the conditions of an OCA. We apply ADF tests, together with the Schmidt-Phillips tests, and we estimate the fractional differential process to overcome the disadvantages of the traditional tests, to test for nominal and real convergence. We conclude that a process of real divergence and nominal convergence does exist, and suggest this is a source of genuine imbalance in the European integration process that can destroy the harmonious development of the European Monetary Union.http://dx.doi.org/10.14195/2183‑203X_42_1

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OCA INDEX AS INDICATOR OF THE CZECH REPUBLIC'S PREPAREDNESS TO JOIN THE EUROPEAN MONETARY UNION

AD ALTA Journal of Interdisciplinary Research ◽

10.33543/11029194 ◽

2021 ◽

Vol 11 (2) ◽

pp. 91-94

Author(s):

SARKA HYBLEROVA

Keyword(s):

Czech Republic ◽

Monetary Union ◽

Euro Area ◽

European Monetary Union ◽

Common Currency ◽

European Monetary ◽

The Czech Republic ◽

Currency Area ◽

Using Data ◽

Key Indicators

The optimum currency area (OCA) theory evaluates the currency area as optimum at a time when the participating countries are not at risk of macroeconomic instability due to the existence of a common currency. The OCA index is a tool used to comprehensively assess the costs and benefits of a candidate for joining a monetary union. It is constructed as a bilateral index assessing the appropriateness of introducing the single currency in two countries. The article presents the OCA index quantified for the Czech Republic in relation to Germany, which is considered to be the core of the European Monetary Union. Since the OCA index needs to be interpreted in a temporal or spatial comparison, the calculation of the OCA index was also performed for other countries of the Visegrad Group (V4) and furthermore for Austria and Portugal, using data from the period of 2007–2019. The results of the OCA index show a high degree of variability in the Czech Republic in the observed period. While in the first half of the period under review, the Czech Republic achieved the best results within the assessed economies and the Czech Republic's level of preparedness for the common currency with Germany was higher than in the case of Austria, it fell sharply after 2012. The reason can be seen, among other things, in the higher growth rate of the Czech economy than in the euro area. Although the OCA index is an indicator assessing the preparedness of an economy to join a monetary union, it cannot be the only indicator. Other important criteria include, for example, labour mobility, price and wage flexibility, fiscal integration and more. Although the Czech Republic is approaching the euro area average in all key indicators, the gap from it remains significant for most indicators and thus continues to be a factor against the adoption of the euro in the coming years.

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RESERVE POOLING AND ITS IMPLICATION ON OPTIMUM CURRENCY AREA IN ASEAN

The Singapore Economic Review ◽

10.1142/s021759080900329x ◽

2009 ◽

Vol 54 (02) ◽

pp. 299-312 ◽

Cited By ~ 1

Author(s):

TAJUL ARIFFIN MASRON ◽

ZULKORNAIN YUSOP

Keyword(s):

Free Trade Area ◽

Monetary Integration ◽

Optimum Currency Area ◽

Positive Outcomes ◽

Common Currency ◽

Currency Area ◽

Trade Area ◽

Optimum Currency ◽

Trade And Investment ◽

Reserve Pooling

Regional economic integration in ASEAN, ASEAN Free Trade Area (AFTA), is expected to produce positive outcomes on economic growth in ASEAN especially through its impact on trade and investment. This idea can be strengthened if regional monetary integration is followed. Therefore, focusing on reserve pooling, which is one of the proxy for Optimum Currency Area (OCA) variables, this study intends to examine the feasibility of a common currency in ASEAN. In addition, this study also investigates this idea in the presence of external shock.

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On Economic Sovereignty: European Nation-States Between Globalization and Regional Integration

The Tocqueville Review/La revue Tocqueville ◽

10.3138/ttr.20.2.113 ◽

1999 ◽

Vol 20 (2) ◽

pp. 113-122

Author(s):

Jacques Le Cacheux

Keyword(s):

Regional Integration ◽

Banking Sector ◽

Monetary Integration ◽

Hostile Takeover ◽

European Monetary ◽

German Government ◽

Monetary Unification ◽

European Nation ◽

Nation States ◽

National Economic

European monetary unification has once again brought the issue of national economic sovereignty to the front: often regarded as the quintessential attribute of national sovereignty in the realm of economics, monetary powers have been most solemnly foregone and transferred to a supranational authority, independent from political bodies. Insistence by the French minister of Finance that restructuring French banking sector should take place within the national borders, frustration over the impossibility for continental member states to go on imposing an embargo over British beef, the opening of the so-called Millennium round of international trade negotiations in late November in Seattle, the loud reactions of the German government and press to the hostile takeover bid over Mannesmann, a giant “German” telecommunication company, by the “British” Vodafone: over recent months, there have been many examples of the ambivalent way in which European nation states react to the consequences of globalization and international monetary integration.

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A Search for an Optimum Currency Area

Studia commercialia Bratislavensia ◽

10.2478/stcb-2018-0006 ◽

2018 ◽

Vol 11 (39) ◽

pp. 75-90

Author(s):

Martin Hudec

Keyword(s):

Theoretical Concept ◽

Monetary Integration ◽

Optimum Currency Area ◽

The European Union ◽

Common Currency ◽

Euro Adoption ◽

Currency Area ◽

Optimal Currency Areas ◽

The Common ◽

Optimum Currency

Abstract Economic and monetary integration is the result of unifying efforts that have become a major driving force in post-war Europe. Although some of the initial initiatives, the Monetary Union project has many times been on the brink of interest. It can be as the surprise that Europe has managed to implement the common currency so soon and relatively smoothly. Nevertheless, even after its launch, this project has never completely abandoned criticism and discussion of the legitimacy and meaningfulness of its existence. Critical attitudes to the introduction of the common currency in the European Union are based above all on the Optimum Currency Area theories. The theoretical concept of optimal currency areas is currently considered a standard tool for assessing monetary integration efforts in Europe. OCA criteria are used to estimate the readiness of the candidate countries to adopt the euro, while the convergence processes are linked to the decision on the euro adoption timeline. The aim of our research article is, therefore, to closely analyze the issue of monetary policies and optimal currency areas in the context of convergence efforts towards more closely integrated economic and monetary unions.

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ECOWAS COMMON CURRENCY: HOW PREPARED ARE ITS MEMBERS?

Investigación Económica ◽

10.22201/fe.01851667p.2019.308.69625 ◽

2019 ◽

Vol 78 (308) ◽

pp. 89

Author(s):

Sagiru Mati ◽

Irfan Civcir ◽

Hüseyin Ozdeser

Keyword(s):

Monetary Union ◽

West African ◽

Common Currency ◽

Convergence Criteria ◽

Impulse Responses ◽

Economic Community ◽

European Monetary ◽

Currency Area ◽

Variance Decompositions ◽

Optimum Currency

ABSTRACTThis study operationalizes the Optimum Currency Area (OCA) to investigate the preparedness of Economic Community of West African States (ECOWAS) members to form a Monetary Union (MU). Inflation and output models are estimated, with the sample 1988:01 to 2017:12 for the former and 1967 to 2016 for the latter. Analyses of ECOWAS convergence criteria, impulse responses, variance decompositions and correlations of shocks of these two models, reveal that the shocks across the ECOWAS members are asymmetric. The conclusion is that ECOWAS members as a whole are not well-prepared and therefore a full-fledged pan-ECOWAS MU is not advisable. It is also found that members of the European Monetary Union (EMU) tend to be a better fit for OCA than the ECOWAS members. The study recommends various courses of action such as fostering coordination among Central Banks of ECOWAS members, and providing a fund to serve as an incentive for countries that may incur cost rather than benefit if the single currency is created. LA MONEDA COMÚN DE LA ECOWAS: ¿CUÁN PREPARADOS ESTÁN SUS MIEMBROS?RESUMENUtilizamos el Área Monetaria Óptima (AMO) para indagar cuán preparados están los miembros de la Comunidad Económica de Estados de África Occidental (ECOWAS, Economic Community of West African States) para formar una Unión Monetaria (UM). Estimamos modelos de inflación y producto con datos de 1988:01-2017 y 1967-2016 respectivamente. Los análisis de criterios de convergencia, impulso-respuesta, descomposición de varianza y correlación de choques de estos modelos revelan que los choques entre estos países son asimétricos. Concluimos que estos países no están bien preparados y, por tanto, una UM pan-ECOWAS no es aconsejable. Además, los integrantes de la Unión Monetaria Europea (UME) tienden a satisfacer mejor una AMO que los de ECOWAS. Nuestro análisis recomienda fortalecer la coordinación entre los bancos centrales de la ECOWAS y un fondo que incentive a los países que incurran en costos en lugar de beneficios si se crea la moneda única.

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