ìNew" Views on the Optimum Currency Area Theory: What is EMU Telling US?

This paper traces the advancements of the optimum currency area theory through its successive phases: the "pioneering phase," the "cost-benefit phase," the "reassessment phase," and the "empirical phase" in which we focus mostly on Europe because there is now a wealth of data, research and other information on European integration. The thrust of the pioneering contributions is still relevant and that the analysis of the benefits and costs from monetary integration has greatly evolved. There are more benefits and some of the perceived costs are smaller than previously thought. We also need to distinguish between an "OCA question" and an "EMU question."

Endogeneities of optimum currency areas: what brings countries sharing a single currency closer together?

This paper brings together several strands of the literature on the endogenous effects of monetary integration: i.e., whether sharing a single currency may set in motion forces bringing countries closer together. The start of EMU has spurred a new interest in this debate. Four areas are analysed: the endogeneity of economic integration, in which we look primarily at evidence on prices and trade; the endogeneity of financial integration or equivalently of insurance schemes based on capital markets; the endogeneity of symmetry of shocks; and the endogeneity of product and labour market flexibility. We present diverse arguments and, where possible, explore the incipient empirical literature focussing on the euro area. Our preliminary conclusion is one of moderate optimism. The different endogeneities that exist in the dynamics towards optimum currency areas are at work. How strong these endogeneities are and how quickly they will do their work remains to be seen. JEL Classification: E42, F13, F33, F42Economic and Monetary Integration and EMU, Optimum Currency Area

What effects is EMU having on the euro area and its member countries? An overview

This paper addresses the effects of the European Economic and Monetary Union (EMU) since the introduction of the euro -- on economic and financial structures, institutions and performance. What type of changes is the euro fostering? What forces is it setting in motion that were not there before? Six years after the launch of the euro, was an appropriate time to start taking stock of these effects. For this purpose, in June 2005, the ECB held a workshop on “What effects is EMU having on the euro area and its member countries?” The workshop was organised in five areas: 1. trade integration, 2. business cycles synchronisation, economic specialisation and risk sharing, 3. financial integration, 4. structural reforms in product and labour markets, and 5. inflation persistence. This paper sets the workshop in the context of the current debate on the effects of EMU and brings together several of the issues raised by the leading presentations: i.e., this paper serves as an overview. Overall, the effects of the euro observed are beneficial. However, progress has been uneven in the above areas. Many potential concerns preceding the launch of the euro have been dispelled. Moreover, it will take more time for the full effects of the euro to unravel. JEL Classification: E42, F13, F33, F42Economic and Monetary Integration and EMU, Optimum Currency Area

"New" views on the optimum currency area theory: what is EMU telling us?

This paper surveys the optimum currency area (OCA) literature. It is organised into four phases: the 'pioneering phase' which put forward the OCA theory and its properties, the 'reconciliation phase' when its diverse facets were combined, the 'reassessment phase' that led to the 'new OCA theory' and the 'empirical phase' during which the theory was subject to due empirical scrutiny. We make systematic reference to the European economic and monetary union (EMU) to which the OCA theory has been most frequently applied. All pioneering contributions are still relevant. Several early weaknesses have now been amended. Meanwhile, the balance of judgements has shifted in favour of currency unions. They are now deemed to generate fewer costs in terms of the loss of autonomy of domestic macroeconomic policies, and there is greater emphasis on the benefits. Looking ahead we are confronted with two distinct paradigms -- specialisation versus endogeneity of OCA. JEL Classification: E42, F15, F33, F41and EMU, Economic and Monetary Integration, International Monetary Arrangements, Optimum Currency Area

European integration: what lessons for other regions? The case of Latin America

This paper tests for the hypothesis that institutional integration interacts with economic integration at the regional level. In particular, we ask what lessons can be drawn from the European experience with regional integration for Latin America. Several indicators of institutional and economic integration for both the EU and Latin America are presented. We find that Latin America is currently less economically integrated not only than the European Union today, but in some cases even than the EU at the beginning of its regional integration process. A cluster analysis illustrates that the link between institutional and economic integration has worked both ways throughout the whole EU experience. The more institutional integration went beyond the creation of a customs union and moved towards a common market and an economic and monetary union, the deeper economic integration turned out. Increasing economic integration in turn corroborated and sustained the process of institutional integration. JEL Classification: E42, F15, F33, F41intra-regional exchange rate variability, Regional integration in Europe and Latin America