Mundell Revisited: A Simple Approach to the Costs and Benefits of a Single Currency Area

2000 ◽  
Author(s):  
Stephen Tang-Foon Ching ◽  
Michael B. Devereux
Keyword(s):  
Simple Approach ◽  
Costs And Benefits ◽  
Single Currency ◽  
Currency Area

Effective European monetary union in the light of the optimum currency area; model countries: Germany and Poland

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ergin Akalpler
Keyword(s):  
Monetary Union ◽  
Unit Root ◽  
Quantitative Research ◽  
Panel Cointegration ◽  
Monetary Integration ◽  
Optimum Currency Area ◽  
Single Currency ◽  
Content Type ◽  
Currency Area ◽  
Optimum Currency

PurposeThis study aims to research the effects of unemployment wages current account and consumer price index (CPI) on the real gross domestic product (RGDP), which, in the optimum currency area (OCA) theory, supposes that countries with higher factor mobility can significantly profit from the currency area. However, in this study, it is shown that the considered optimum currency crisis (OCC) model is affected by mobility factors, as the defined theory has not been perfectly realised in the Eurozone.Design/methodology/approachIn this study, Breusch–Pagan–Godfrey and Lagrange multiplier (LM) tests are used for supporting the survey for better estimation of the panel cointegration tests, where Pedroni's (1995, 1997) technique is used. The unit root tests are employed, of which the Phillip–Perron and augmented Dickey–Fuller tests (unit root test, Dickey, D. and W. Fuller, 1979) are considered.FindingsIt can be concluded that demand shocks will tend to be more asymmetric instead of being symmetric, even though they are in the customs union (CU). However, Polish workers in a given scenario may move to Germany, but because of the rigidity of the labour market and qualification differences between workers, the interregional integration of member countries is reduced, and this reduces the absorption of asymmetric shocks. In Germany, where strong employment protection and rigidity are observed in comparison to Poland, although there has been historical migration and economical collaboration, unfortunately, the integration of the two countries’ economies has not been realised.Research limitations/implicationsQuantitative research on fiscal union and the estimation of its effects is not possible because there is no practical experience of fiscal union throughout the European Union (EU). However, quantitative research is used for estimating the effects of OCA in the Eurozone. Quantitative investigation is particularly focused on the monetary union and single currency and its impact on growth rate. In this study, the ordinary least squares (OLS) method and panel cointegration test are employed for estimating the effects of the considered variables.Practical implicationsThe Eurozone and the application of a single currency throughout the EU was a considerably difficult task. In addition, the adoption of a single currency was not easy for those member countries that fulfilled the “convergence criteria” (or “Maastricht criteria”) and who joined the Eurozone, because only adoption is not enough; maintenance of those criteria is also required. This study analysed the application of the Eurozone in the light of the OCA of Mundel's theory.Social implicationsThe OCA is important for member countries’ economic relations. However, the application of a single currency is not easy and needs to be controlled and regulated to ensure best practises throughout the Eurozone. Monetary integration is not a simple process, and Eurozone countries’ financial difficulties affect each other’s markets’ indifferent aspects. Particularly in any market recession, demand shocks tend to have different effects. Furthermore, in comparison to the monetary union, the CU has a considerable impact on trade enlargement.Originality/valueIn this study, the effects of the independent variables “wages, unemployment, CPI and capital flow” on the dependent variable “RGDP” is considered, which, in the OCA theory, supposes that countries with higher factor mobility can significantly profit from the currency area. In application, it was turned into crisis because of inadequate monetary and fiscal application. In this paper OCA is questioned in the light of the Eurozone for bringing better understanding to these difficulties. The considered model and estimations are used for evaluating to create sustainable monetary integration for economic growth.

scholarly journals Pembentukan Mata Uang Tunggal Kawasan ASEAN

2020 ◽  
Vol 7 (2) ◽  
pp. 152
Author(s):  
Nurul Cholifah ◽  
Diah Wahyuningsih
Keyword(s):  
Exchange Rate ◽  
Financial Integration ◽  
Bilateral Trade ◽  
Positive Influence ◽  
Single Currency ◽  
Output Data ◽  
Currency Area ◽  
Local Currency ◽  
Asean Countries ◽  
Oca Criteria

Financial integration is the last step that can be done to achieve economic integration. One condition that must be met before the implementation of financial integration is the existence of the optimal currency area (OCA) criteria. The purpose of this study: 1) to find out the closeness of the currency to changes in the bilateral exchange rate as a supporter in the possibility of forming a single currency in the ASEAN region, 2) to analyze the chosen anchor currency which has a positive influence (appreciation) on the local currency of the ASEAN region as a currency single money region. This study uses annual real output data, size of GDP ratio, bilateral trade, differences in the composition of trade, and the exchange rate throughout of 1995-2018 period. The analytical method used is panel data test. The results showed that the currencies of ASEAN countries did not yet have the closeness of forming a single currency in the ASEAN region. Meanwhile, to determine the appropriate anchor currency to be used as a shared currency, namely SGD (Singapore Dollar) empirically has a positive influence (appreciation) in the ASEAN region compared to RMB, JPY, Euro, or USD. Therefore SGD can be proposed as an anchor currency for ASEAN countries.

scholarly journals A Tale of Politically-Failing Single-Currency Area

2012 ◽  
Author(s):  
Assaf Razin ◽  
Steven Rosefielde
Keyword(s):  
Single Currency ◽  
Currency Area

Banking union in a single currency area: evidence on financial fragmentation

2015 ◽  
Vol 7 (3) ◽  
pp. 251-274 ◽  
Author(s):  
Diego Valiante
Keyword(s):  
Data Analysis ◽  
Euro Area ◽  
Financial Integration ◽  
Institutional Design ◽  
Home Bias ◽  
Banking Union ◽  
Single Currency ◽  
Content Type ◽  
Currency Area ◽  
The Impact

Purpose – The purpose of this paper is to assess the impact of the impact of the single currency on the institutional design of the banking union, through evidence on the financial integration process. Design/methodology/approach – Data analysis uses multiple sources of data on key drivers of financial fragmentation. The paper starts from a snapshot the status of financial integration and then identifies the main components of this trend. Findings – Evidence shows that financial integration in the euro area between 2010 and 2014 retrenched at a quicker pace than outside the monetary union. Home bias persisted. Under market pressures, governments compete on funding costs by supporting “their” banks with massive state aids, which distorts the playing field and feed the risk-aversion loop. This situation intensifies frictions in credit markets, thus hampering the transmission of monetary policies and, potentially, economic growth. Taking stock of developments in the euro area, this paper discusses the theoretical framework of a banking union in a single currency area with decentralised fiscal policy sovereignty. It concludes that, when a crisis looms over, a common fiscal backstop can reduce pressures of financial fragmentation, driven by governments’ moral hazard and banks’ home bias. Research limitations/implications – Additional research is required to deepen the empirical analysis, with econometric modelling, on the links between governments’ implicit guarantees and banks’ home bias. This is an initial data analysis. Originality/value – Under market pressure, governments in a single currency area tend to be overprotective (more than countries with full monetary sovereignty) towards their own banking system and so trigger financial fragmentation (enhancing banks’ home bias). To revert that, a common fiscal backstop is an essential element of the institutional design. The paper shows empirical evidence and theory, as well as it identifies underlying market failures. It links the single currency to the institutional design of a banking union. This important dimension is brought into a coherent framework.

scholarly journals IMPLEMENTATION OF OPTIMUM CURRENCY AREA CRITERIA AND ITS VOLATILITY: CASE STUDY ASEAN-5+3

2010 ◽  
Vol 13 (2) ◽  
pp. 187-214
Author(s):  
Dimas Bagus Wiranata Kusuma ◽  
Arief Dwi Putranto
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Volatility ◽  
Economic Structure ◽  
Optimum Currency Area ◽  
Single Currency ◽  
Currency Area ◽  
Currency Exchange ◽  
Currency Exchange Rate ◽  
Optimum Currency

This paper is aiming to elaborate the case of how exchange rate volatility (ERV), which is supposedly considered to form optimum currency area (OCA), can be reduced in order justify the feasibility of the OCA idea within ASEAN5 plus three. Interestingly, the results provide some evidences that the ASEAN5+3 are considered not really ready to form OCA. It corroborates the existing opinion that the different in economic structure and its policies over foreign environment are becoming some barriers and challenging area to synchronize in the following time. The positive impacts AS to ERV which are incurred in ASEAN5+3 economies indicate the existence of inappropriate condition to form OCA since there are no similar shocks across a monetary union’s participating countries. Under such condition, it would foster the costs of forgoing the exchange rate as a shock absorbing mechanism. It deserves to argue that those observed countries still are resisting their existing regime since they are till believing that they begin to establish the system of monetary which are able to absorb any possible shocks in regards of their SIZE. In sum, the ASEAN5+3 countries are considered to fulfilling the requirement to form currency optimum area which are able to main their stable currency.JEL: D81, E52, F15, F36Key words: Optimum Currency Area, a Single Currency, Exchange Rate Volatility, Stability

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