Endogenous OCA Analysis and the Early Euro Experience

22 Pages Posted: 14 Jul 2010

See all articles by Thomas D. Willett

Thomas D. Willett

Independent

Orawan Permpoon

affiliation not provided to SSRN

Clas Wihlborg

Chapman University; University West

Abstract

Some have argued that the endogenous responses to the formation of a currency area are so strong that one need not worry about optimum currency area conditions ex ante. We argue that this is much too strong a conclusion. We draw on a number of recent studies to evaluate the endogeneity experiences of the eurozone in three major areas; trade flows, business cycle synchronisation and structural reforms to improve labour and product market flexibility. Simple before-and-after comparisons are insufficient for analysis of endogeneity. The experiences of non-euro Western European economies suggest that broader trends also had considerable influence on trade and business cycle patterns. While trade rose substantially within the eurozone, it also rose with and among other European economies. We argue that political economy considerations tend to dampen the magnitude of endogeneity efforts on structural reforms and that meeting conditions for entry may be a more powerful mechanism in this than are subsequent endogenous responses. We also discuss a number of areas for further research.

Suggested Citation

Willett, Thomas D. and Permpoon, Orawan and Wihlborg, Clas, Endogenous OCA Analysis and the Early Euro Experience. World Economy, Vol. 33, No. 7, pp. 851-872, July 2010, Available at SSRN: https://ssrn.com/abstract=1639642 or http://dx.doi.org/10.1111/j.1467-9701.2010.01268.x

Orawan Permpoon

affiliation not provided to SSRN

No Address Available

Clas Wihlborg

Chapman University ( email )

333 N. Glassell
Orange, CA 92866
United States
+17147447630 (Phone)

University West ( email )

Trollhättan, 46186
Sweden

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