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The endogeneity of optimum currency area criteria – lessons from history for European monetary union

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  • François Mann‐Quirici

Abstract

Purpose - Assesses whether the current pattern of relative wage rigidity and labour inertia in Europe is a problematic factor in the successful functioning of the European monetary union as viewed by many observers given the absence of interregional fiscal transfer payments. Design/methodology/approach - Uses econometric methods to test whether the onset of monetary integration in the US and the gold standard in selected countries has increased the pro‐cyclical behaviour of real wages. Findings - Finds suggestive empirical evidence that indeed a Lucas Critique argument applies such that credibly fixed exchange rate regimes might induce wages to carry the burden of macroeconomic adjustment in lieu of independent monetary policy and/or fiscal transfers. Originality/value - Makes a novel contribution to the literature by attempting to test for the existence of endogenous adjustment mechanisms based on historical monetary unions analogous to EMU.

Suggested Citation

  • François Mann‐Quirici, 2005. "The endogeneity of optimum currency area criteria – lessons from history for European monetary union," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 32(5), pages 387-405, October.
    • Handle: RePEc:eme:jespps:01443580510622388
    DOI: 10.1108/01443580510622388
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