A Model of an Optimum Currency Area

33 Pages Posted: 18 Dec 2010

See all articles by Luca A. Ricci

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 5 versions of this paper

Date Written: 2008

Abstract

This paper develops a model of the circumstances under which it is beneficial to participate in a currency area. The proposed two-country monetary model of trade with nominal rigidities encompasses the real and monetary arguments suggested by the optimum currency area literature: correlation of real and monetary shocks, international factor mobility, fiscal adjustment, openness, difference in national inflationary biases, and transactions costs. The effect of openness on the net benefits is ambiguous, contrary to the usual argument that more open economies are better candidates for a currency area. Also, prospective member countries do not necessarily agree on whether a given currency union should be created. --

Keywords: Optimum currency areas, cost- benefit analysis, exchange rate regimes, currency union, monetary integration

JEL Classification: H77, J61, F31, E42, E52, E61, F33, F02, F36, F4

Suggested Citation

Ricci, Luca Antonio, A Model of an Optimum Currency Area (2008). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 2, 2008-8, Available at SSRN: https://ssrn.com/abstract=1726837 or http://dx.doi.org/10.5018/economics-ejournal.ja.2008-8

Luca Antonio Ricci (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

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