NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is Europe an Optimum Currency Area?

Barry Eichengreen

NBER Working Paper No. 3579
Issued in January 1991
NBER Program(s):   ITI   IFM

An optimum currency area is an economic unit composed of regions affected symmetrically by disturbances and between which labor and other factors of production flow freely. The symmetrical nature of disturbances and the high degree of factor mobility make it optimal to forsake nominal exchange rate changes as an instrument of adjustment and to reap the reduction in transactions costs associated with a common currency. This paper assesses labor mobility and the incidence of shocks in Europe by comparing them with comparable measures for Canada and the United States. Real exchange rates, a standard measure of the extent of assymetrical disturbances, remain considerably more variable in Europe than within the united states. Real securities prices, a measure of the incentive to reallocate productive capital across regions, appear considerably more variable between Paris and Dusseldorf than between Toronto and Montreal. A variety of measures suggests that labor mobility and the speed of labor market adjustment remain lower in Europe than in the United states. Thus, Europe remains further than the currency unions of North America from the ideal of an optimum currency area.

download in pdf format
   (794 K)

email paper

This paper is available as PDF (794 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3579

Published: Silvo Borger and Berber Grubel eds, The European Community after 1992, Perspectives from the Outside, London: Macmillan, 1992.

Users who downloaded this paper also downloaded these:
Feldstein w17617 The Euro and European Economic Conditions
Bordo, Markiewicz, and Jonung w17380 A Fiscal Union for the Euro: Some Lessons from History
Eichengreen The Breakup of the Euro Area
Alesina, Barro, and Tenreyro Optimal Currency Areas
Frankel w7338 No Single Currency Regime is Right for All Countries or At All Times
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us