Currency Areas, Labor Markets, and Regional Cyclical Sensitivity

Katheryn N. Russ (), Jay Shambaugh and Sanjay Singh
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Katheryn N. Russ: University of California, Davis

IMF Economic Review, 2024, vol. 72, issue 1, No 5, 152-195

Abstract: Abstract In his papers during the lead up to the birth of the European Monetary Union, Obstfeld considered whether the countries forming the EMU were sufficiently similar to survive a single monetary policy—and more importantly, whether they had the capacity to adjust to asymmetric shocks given a single monetary and exchange rate policy. The convention at the time was to take the United States as the baseline for a smoothly functioning currency union. We expand on stylized facts in the literature to illustrate how stratification in local labor market outcomes appears far more persistent in later years than 3 decades ago in the context of what (Obstfeld and Peri in Econ Policy 13(26):205–259, 1998) call non-adjustment in unemployment rates. We then extend the currency union literature by adding an additional consideration: differences in regional cyclical sensitivity. Using measures of cyclicality and Obstfeld–Peri-type non-adjustment, we explore the characteristics of places that can get left behind when local labor markets respond differently to national shocks and discuss implications for policy.

JEL-codes: F15 F16 F45 F66 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Currency Areas, Labor Markets, and Regional Cyclical Sensitivity (2023)
Working Paper: Currency Areas, Labor Markets, and Regional Cyclical Sensitivity (2023)
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DOI: 10.1057/s41308-023-00223-w

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