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Title:A Model of an Optimum Currency Area PDF Logo
Authors:Ricci, Luca Antonio
Issue Date:2007
Series/Report no.:Economics Discussion Papers / Institut für Weltwirtschaft 2007-45
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.
Subjects:Optimum currency areas
cost-benefit analysis
exchange rate regimes
currency union
monetary integration
JEL:E52
E42
H77
F36
F33
F31
J61
F02
F4
E61
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Working Paper
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers

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