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Optimum Currency Areas And European Monetary Unification

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  • SELAHATTIN DIBOOGLU
  • JULIUS HORVATH

Abstract

This paper examines the European experience from optimum currency areas perspective with a focus on the correlation of underlying aggregate shocks within a structural vector autoregression (VAR) framework. Appropriately identifying supply shocks, real fiscal shocks, and nominal shocks, the paper investigates the correlations of shocks and tries to evaluate the likely adjustment and other problems that may take place with the introduction of a single currency in Europe. Using data for 20 European market economies, the paper compares original members of the European Community to new members and non‐members. Shocks are mostly country‐specific, particularly for newer members and non‐members, suggesting the importance of alternative adjustment mechanisms other than national monetary policies after the introduction of a single currency.

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  • Selahattin Dibooglu & Julius Horvath, 1997. "Optimum Currency Areas And European Monetary Unification," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 37-49, January.
    • Handle: RePEc:bla:coecpo:v:15:y:1997:i:1:p:37-49
    DOI: 10.1111/j.1465-7287.1997.tb00453.x
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    2. Ghnaya, Nejma & Bouzir, Aida & Benammou, Saloua, 2022. "Asymmetry and Correlation of Macroeconomic Shocks: Adjustments within Heterogeneous Union," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 29(01).
    3. Igor Velickovski & Aleksandar Stojkov & Ivana Rajkovic, 2017. "DIS Union of the Core and the Periphery," International Journal of Economics and Financial Issues, Econjournals, vol. 7(6), pages 159-174.
    4. Peter Mikek, 2009. "Shocks to New and Old Europe: How Symmetric?," Journal of Common Market Studies, Wiley Blackwell, vol. 47(4), pages 811-830, September.
    5. Mirdala, Rajmund & Ruščáková, Anna, 2015. "On Origins and Implications of the Sovereign Debt Crisis in the Euro Area," MPRA Paper 68859, University Library of Munich, Germany.
    6. Drazen Derado & Antonela Mlikota, 2007. "Is Croatia Ready For The Emu?: An Ex Ante Analysis Of Nominal And Real Convergence," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 16(2), pages 113-146, december.
    7. Drobyshevsky Sergey & Polevoy D., 2007. "Financial aspects of currency integration in CIS," Research Paper Series, Gaidar Institute for Economic Policy, issue 109P.
    8. Igor Velickovski, 2013. "Assessing independent monetary policy in small, open and euroized countries: evidence from Western Balkan," Empirical Economics, Springer, vol. 45(1), pages 137-156, August.
    9. Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 202-211, June.
    10. Sergey Drobyshevsky & Dmitri Polevoy, 2004. "Problems Associated with Creation of a Single Currency Zone in the CIS Countries," Research Paper Series, Gaidar Institute for Economic Policy, issue 80P, pages 110-110.
    11. Joan Costa Font & Joan Batalla Bejerano, 1998. "Eastern European Countries and the EMU: departure situation and transition strategies," ERSA conference papers ersa98p192, European Regional Science Association.

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