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Currency Integration under Labor Mobility: when Cost is incurred

Taiyo Yoshimi ()

Journal of Economic Integration, 2014, vol. 29, 188-209

Abstract: We assess whether renouncing monetary policy autonomy becomes a cost of currency integration under labor mobility in the framework of the New Open Economy Macroeconomics. Assuming Nash equilibrium among central banks of candidate countries, we find that the forfeiture of monetary policy autonomy becomes a cost when country-specific total factor productivity shocks hit them, labor input weights differ between candidate countries, and country specific shocks on marginal disutility of labor occur. These finer points suggest that it cannot generally be concluded that there is no cost of currency integration under labor mobility, as discussed in the classic Optimum Currency Area theory.

Keywords: New Open Economy Macroeconomic (NOEM) Model; Currency Integration; Labor Mobility; Exchange Rate Regime (search for similar items in EconPapers)
JEL-codes: F30 F33 F41 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:ris:integr:0626