Are Optimal Currency Areas Optimal for All? A Reassessment of the Case for Asian Monetary Union

This paper is a pioneering attempt to include India with east and Southeast Asia to study the existence of the economic criteria for a common currency. The analysis in this paper shows that significant complementarities in trade exist among these countries, most of them experience similar shocks and labor mobility is already present. These results point to the fact that the cost of adopting a single currency may be minimal, while huge benefits could accrue from enhanced trade. The paper also recognizes the importance of yen for the success of the monetary union in Asia.Common Currency, Optimum Currency Areas, Monetary Union, Asia, India.

Can South Asia Adopt a Common Currency?

The paper examines if the seven South Asian countries satisfy the criteria to form an optimal currency area. The empirical part of the paper reveals some positive attributes (such as the existence of positive shocks for major economies like India, Pakistan and Sri Lanka). The paper provides geo-political reasoning for more economic cooperation among the countries, suggesting areas where cooperation could be mutually beneficial to the economies. This paper argues that the benefits of a common currency would accrue from the peace that economic integration would bring between India and Pakistan. The paper also compares this region with Western Europe and Southeast Asia.South Asia, SAARC, Monetary union, economic integration, optimal currency areas

Misaligned? Overvalued? The Untold Story of the Turkish Lira

There is a consensus among scholars that overvalued exchange rates result in currency crises. This paper estimates the equilibrium real exchange rate for Turkey and finds that the lira was indeed overvalued before the crises in 1994 and 2001. However, the actual real exchange rate is at present close to the equilibrium level, exposing the myth propagated by the Turkish exporters that lira’s overvaluation is responsible for Turkey’s uncompetitive exports. The paper also highlights the role for fiscal adjustment in macroeconomic stabilityTurkish lira, overvaluation, equilibrium real exchange rate, misalignment

Eurosclerosis or Financial Collapse: Why Did Swedish Incomes Fall Behind?

Sweden represents an archetypal welfare state economy, with extensive government safety nets. Some scholars have attributed a decline in its per capita income ranking since 1970 to “eurosclerosis” or sluggish growth caused by distortionary policies. This paper argues rather, that the permanent loss in output following Sweden’s banking crisis in the early 1990s explains the decline in its per capita GDP ratings. The paper finds no macroeconomic evidence that welfare state policies have deterred growth. The results warn that empirical growth analyses should distinguish between trend output growth and permanent output loss associated, for example, with financial crises.Financial Crisis; Welfare State; Sweden; Output Loss

How Competitive is Irish Manufacturing?

Ireland experienced significant competitiveness gains in the 1990s on the basis of the standard manufacturing unit labour cost-based measure of the real effective exchange rate. A few sectors mostly dominated by multinational companies have accounted for the bulk of value added in production. Their productivity gains have greatly contributed to Ireland’s exceptional growth performance in the 1990s, which has earned it the nickname of “Celtic Tiger.” However, these sectors represent a disproportionately smaller share of manufacturing employment, and competitiveness in employment-intensive sectors has been much weaker. This paper thus explores Irish competitiveness from the viewpoint of risks to employment.

Misaligned? Overvalued?. The Untold Story of the Turkish Lira

Scholars agree that overvalued exchange rates result in currency crises. This paper estimates the equilibrium real exchange rate for Turkey, finding that the lira was indeed overvalued before the crises in 1994 and 2001. However, the actual real exchange rate is at present close to the equilibrium level, exposing the myth propagated by Turkish exporters that the lira's overvaluation is responsible for Turkey's uncompetitive exports. The paper also highlights the role for fiscal adjustment in macroeconomic stability.equilibrium real exchange rate, misalignment, overvaluation, Turkish lira,