A convergence-sensitive optimum-currency-area index

Michal Skořepa ()

No 2011/23, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: A number of authors have used the concept of an optimum currency area (or OCA) index to assess the relative proximity of various pairs of economies to the ideal of an optimum currency area. Alas, a significant deficiency of this approach as used so far is that it provides no room for long-term real income convergence - a frequently observed process that can be viewed as a specific type of long-term asymmetric shock. In this paper, a novel way to construct the OCA index is suggested that is sensitive to any real convergence (or divergence) between the two economies under study. Estimation of this convergence-sensitive OCA index for a sample of OECD economies yields an intuitively plausible result: real convergence gains on significance within the OCA index after an initial sample, a group of advanced OECD economies, is broadened with a group of emerging economies. Applied to the 2001-2008 period, the convergence-sensitive index shows a few Central and Eastern European late-transition economies to be better prepared for a common currency with Germany than several current euro area members.

Keywords: optimum currency area; OCA index; real convergence; real exchange rate; trend appreciation (search for similar items in EconPapers)
JEL-codes: E58 F15 F31 O2 (search for similar items in EconPapers)
Pages: 30pages
Date: 2011-07, Revised 2011-07
New Economics Papers: this item is included in nep-cba, nep-mon, nep-opm and nep-tra
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ies.fsv.cuni.cz/default/file/download/id/17179 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://ies.fsv.cuni.cz/default/file/download/id/17179 [301 Moved Permanently]--> https://ies.fsv.cuni.cz/default/file/download/id/17179)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2011_23

Access Statistics for this paper

More papers in Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().