TY  - JOUR
AU  - Frankel,Jeffrey A.
AU  - Rose,Andrew K.
TI  - The Endogeneity of the Optimum Currency Area Criteria
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5700
PY  - 1996
Y2  - August 1996
UR  - http://www.nber.org/papers/w5700
L1  - http://www.nber.org/papers/w5700.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu

Andrew K. Rose
Haas School of Business Administration
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-6609
Fax: 510/642-4700
E-Mail: arose@haas.berkeley.edu
AB  - A country's suitability for entry into a currency union depends on a number of economic conditions.  These include, inter alia, the intensity of trade with other potential members of the currency union, and the extent to which domestic business cycles are correlated with those of the other countries.  But international trade patterns and international business cycle correlations are endogenous.  This paper develops and investigates the relationship between the two phenomena. Using thirty years of data for twenty industrialized countries, we uncover a strong and striking empirical finding:  countries with closer trade links tend to have more tightly correlated business cycles.  It follows that countries are more likely to satisfy the criteria for entry into a currency union after taking steps toward economic integration than before.
ER  -