Working Paper: CEPR ID: DP1926
Authors: Michael Artis; Marion Kohler; Jacques Melitz
Abstract: This paper employs worldwide data on output and bilateral trade in order to identify optimum currency areas (OCA?s) on a global basis. By retaining only two of the many criteria that have been mentioned in the literature on OCA?s, it has been possible to use computer programming to do the identification. Based on the first of the two criteria, relating to trade, some large continental OCA?s can be discerned in the world. Adding the second criterion, which concerns symmetry-of-output-shocks, whittles down the size of the OCA?s. Nevertheless, some significant examples remain in the Americas, Europe and Asia, of which the European and the Asiatic are the most noteworthy.
Keywords: optimal currency areas; trade; business cycles
JEL Codes: F02; F15; F40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high levels of bilateral trade (F10) | increased benefits from a common currency (F36) |
| lack of symmetry in output shocks (E32) | significant costs from abandoning independent monetary policy (E49) |
| high levels of bilateral trade (F10) | feasibility of forming an OCA (F53) |
| lack of symmetry in output shocks (E32) | diminishes viability of a currency union (F36) |