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

François Mann‐Quirici

Journal of Economic Studies, 2005, vol. 32, issue 5, 387-405

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.

Keywords: European monetary union; Pay; Flexibility; Europe (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:01443580510622388

DOI: 10.1108/01443580510622388

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