Optimum Currency Areas and Asymmetric Shocks: Comparison of Two Studies

Abstract

Optimum currency areas are very important notion in the integration processes and many debates are conducted questioning whether or not such construction can be achieved. Modern theoretical analyses give chance on the possibility that optimum currency areas can in fact function, however doubt is also expressed in relation to asymmetric shocks and their influence on the overall OCA functionality and presence.

We use two papers and contradict the arguments in order to give better light to this very important issue for EU and Euro area integration processes. On the one hand, there are important conclusions made by Krugman which shadow fusibility of the concept of European Monetary Union, and on the other hand there is the study of Frankel Jeffrey and Rose Andrew that opposes to such findings.

Keywords: Optimum currency areas, asymmetric shocks, EMU, US

JEL Classification: E52, E61, P52, N12 , N14