The equilibrium approach to optimum currency areas

Filippo Cesarano ()
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Filippo Cesarano: Banca d'Italia, Ufficio Ricerche Storiche, Roma (ItaIY)

BNL Quarterly Review, 2006, vol. 59, issue 237, 193-209

Abstract: This paper contrasts the received view of optimum currency areas with the modernequilibrium approach. Setting Mundell's work against earlier analyses of monetary unions exposes the peculiarities of his theory, embedded in the static Keynesian paradigm. Mundell's hypothesis, constructed on the assumption of interregional factor immobility with regions spanning the country borders, leads to exogenous optimality criteria, which characterized the research program of the following decades (section 1). From the late 1990s, however, several papers emphasized the endogeneity ofoptimum currency area criteria on the basis of the new classical macroeconomics, overturning the traditional approach. Highlighting the implications of the Lucas critique, these contributions point at an alternative view of optimality, bringing the subject again into the realm of equilibrium theory (section 2).

Keywords: Currency (search for similar items in EconPapers)
JEL-codes: F33 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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