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Is the United States an optimum currency area? an empirical analysis of regional business cycles

Michael Kouparitsas ()

No WP-01-22, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper develops a statistical model to study the business cycles of the eight U.S. BEA regions. By combining unobserved component and VAR techniques I identify not only common and idiosyncratic sources of innovation, but also common and idiosyncratic responses to common shocks. Using this model, I show, at the usual levels of statistical significance, that U.S. regions deviate significantly from Mundell's notion of an optimum currency area. I identify five core regions that have similar sources of disturbances and responses to disturbances (New England, Mideast, Great Lakes, Rocky Mountains and Far West) and three non-core regions that differ significantly from the core in their sources of disturbances and/or responses to disturbances (Southeast, Plains and Southwest), at business cycle frequencies.

Keywords: Business cycles; Currency convertibility (search for similar items in EconPapers)
Date: 2001, Revised 2001
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-pke
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