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National Institute Economic Review : A Reconsideration of the Optimum Currency Area Approach: The Role of External Shocks and Labour Mobility

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  • Daniel Gros

Abstract

The external shocks emphasised by the standard Optimum Currency Area approach (i.e. shocks to exports) have surpris ingly little influence on employment and unemployment in most member countries of the European Union (EU) whether or not exchange rates are fixed. Short-run exchange-rate variability (but not the level of the exchange rate) seems to have a negative impact on employment. It is often claimed that a high degree of international labour mobility is a condition for a monetary union. However, what matters for the Optimum Currency Area approach is the difference between inter-regional and inter-national labour mobil ity and not the level of the latter. Recent data show that international labour mobility in Europe is of the same order of magnitude as inter-regional labour mobility within member countries and that, the latter seems to be influenced by the housing market. EMU is thus unlikely to significantly worsen the problems that arise through the low mobility of labour in Europe.

Suggested Citation

  • Daniel Gros, 1996. "National Institute Economic Review : A Reconsideration of the Optimum Currency Area Approach: The Role of External Shocks and Labour Mobility," National Institute Economic Review, National Institute of Economic and Social Research, vol. 158(1), pages 108-127, October.
    • Handle: RePEc:sae:niesru:v:158:y:1996:i:1:p:108-127
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    Cited by:

    1. Patrick A. Puhani, 2001. "Labour Mobility: An Adjustment Mechanism in Euroland? Empirical Evidence for Western Germany, France and Italy," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 127-140, May.
    2. Belot, M.V.K., 2001. "Why is the Employment Protection Stricter in Europe than in the US?," Discussion Paper 2001-79, Tilburg University, Center for Economic Research.
    3. Marc-Alexandre Sénégas, 2010. "La théorie des zones monétaires optimales au regard de l'euro : Quels enseignements après dix années d'union économique et monétaire en Europe ?," Revue d'économie politique, Dalloz, vol. 120(2), pages 379-419.
    4. Puhani, Patrick A., 1999. "Labour Mobility - An Adjustment Mechanism in Euroland?," IZA Discussion Papers 34, Institute of Labor Economics (IZA).
    5. Belot, M.V.K., 2001. "Why is the Employment Protection Stricter in Europe than in the US?," Other publications TiSEM 1b89c06b-a254-4d69-8d7f-a, Tilburg University, School of Economics and Management.
    6. Takatoshi Ito, 2005. "The Exchange Rate In The Japanese Economy: The Past, Puzzles, And Prospects," The Japanese Economic Review, Japanese Economic Association, vol. 56(1), pages 1-38, March.
    7. Benczes, István, 1999. "Fiskális politika a Gazdasági és Monetáris Unióban [Fiscal policy in the European Economic and Monetary Union]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 362-379.
    8. István Benczes, 2001. "Stability Pact for Hungary? Rise of Third Generation Reforms," CERT Discussion Papers 0103, Centre for Economic Reform and Transformation, Heriot Watt University.
    9. Semedo, Gervasio & Gauthier, Laurent & Bensafta, Kamel Malik, 2012. "Pôles de convergence, gains dynamiques de l’intégration économique et monétaire en Afrique de l’Ouest : une approche en termes de clusters," L'Actualité Economique, Société Canadienne de Science Economique, vol. 88(1), pages 37-85, mars.
    10. Buscher, Herbert S., 1999. "Business Cycles in EU Member States," ZEW Discussion Papers 99-16, ZEW - Leibniz Centre for European Economic Research.
    11. Svenja G�rtner, 2016. "New Macroeconomic Evidence on Internal Migration in Sweden, 1967-2003," Regional Studies, Taylor & Francis Journals, vol. 50(1), pages 137-153, January.
    12. Iacovou, Maria, 2000. "Health, wealth and progeny: explaining the living arrangements of older European women," ISER Working Paper Series 2000-08, Institute for Social and Economic Research.

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