Asymmetric Regional Monetary Cooperation

Laurissa Mühlich

Chapter 7 in Advancing Regional Monetary Cooperation, 2014, pp 97-103 from Palgrave Macmillan

Abstract: Abstract As mentioned in Chapter 5, traditional OCA theory focuses on the question of whether the integrating economies react symmetrically or asymmetrically to external shocks.1 The OCA literature suggests that asymmetric regional monetary integration is a costly undertaking, because regional monetary policy goes along with policy compromises that are likely to be less suitable, with fewer region-wide synchronized business cycles (cf. Mundell, 1961). In view of OCA theory, the most cost-efficient regional monetary integration arrangement would be one in which monetary policy intervention serves similar needs, that is, whenever none of the participating member countries suffers from an inappropriate regional monetary policy strategy. A heterogeneous and perhaps asymmetric group of mostly financially fragile, less diversified economies with inflexible factor markets would not be considered a cost-efficient candidate for pursuing regional monetary cooperation. However, in reality, a number of such regional monetary cooperation arrangements exist. For example, the CMA region in Southern Africa is a prime example of a highly asymmetric regional monetary cooperation arrangement (see Chapters 6 and 10). From an OCA theoretical point of view, such arrangements should be highly inefficient and probably dissolve at a certain point in time.

Keywords: Monetary Policy; Asian Development Bank; European Monetary System; Exchange Rate Mechanism; Regional Anchor (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1057/9781137427212_7

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