A Stochastic Simulation Model of an Optimum Currency Area

Michel Beine and Frédéric Docquier

Open Economies Review, 1998, vol. 9, issue 3, 229-257

Abstract: In this paper, we develop a two-country stochastic simulation model based on the theory of optimum currency areas, which studies the desirability of a monetary union. Extending the general equilibrium model of Ricci (1995), we introduce the intertemporal dimension, which allows to deal more accurately with labor mobility and shock dynamics. We analyse the importance of shocks asymmetries and investigate the role of labor mobility. Furthermore, we illustrate the influence of trade openness and the impact of a fiscal federalism system, assuming a specific transfer allocation rule based on the relative evolution of unemployment between the two countries. Copyright Kluwer Academic Publishers 1998

Keywords: optimum currency area; international labor mobility; fiscal federalism (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (5)

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DOI: 10.1023/A:1008216701051

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