Aftershocks of Monetary Unification: Hysteresis with a Financial Twist

Barry Eichengreen and Tamim Bayoumi

No 11850, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Once upon a time, in the 1990s, it was widely agreed that neither Europe nor the United States was an optimum currency area, although moderating this concern was the finding that it was possible to distinguish a regional core and periphery (Bayoumi and Eichengreen, 1993). Revisiting these issues, we find that the United States is remains closer to an optimum currency area than the Euro Area. More intriguingly, the Euro Area shows striking changes in correlations and responses which we interpret as reflecting hysteresis with a financial twist, in which the financial system causes aggregate supply and demand shocks to reinforce each other. An implication is that the Euro Area needs vigorous, coordinated regulation of its banking and financial systems by a single supervisor—that monetary union without banking union will not work.

Keywords: Monetary unification; Euro; Hysteresis (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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Related works:
Journal Article: Aftershocks of monetary unification: Hysteresis with a financial twist (2020)
Working Paper: Aftershocks of Monetary Unification: Hysteresis with a Financial Twist (2017)
Working Paper: Aftershocks of Monetary Unification: Hysteresis with a Financial Twist (2017)
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