Price Adjustment in Currency Unions: Another Dimension to the Endogeneity of the Optimum Currency Area Criteria?

16 Pages Posted: 3 Jul 2018

See all articles by Michael Bleaney

Michael Bleaney

University of Nottingham - School of Economics

Lin Yin

Central Party School of the Communist Party of China

Date Written: August 2018

Abstract

In a rational expectations model, wages and prices should respond more to shocks in currency unions than under adjustable pegs because of the absence of exchange rate adjustment. This is an aspect of the endogeneity of the optimum currency area criteria that has been largely ignored. Empirical evidence from three currency unions tends to suggest some degree of endogeneity of price flexibility, but the rate of adjustment is slow. Self‐selection into currency unions by countries with naturally greater price flexibility does not appear to be a significant factor.

Suggested Citation

Bleaney, Michael and Yin, Lin, Price Adjustment in Currency Unions: Another Dimension to the Endogeneity of the Optimum Currency Area Criteria? (August 2018). Oxford Bulletin of Economics and Statistics, Vol. 80, Issue 4, pp. 788-803, 2018, Available at SSRN: https://ssrn.com/abstract=3207000 or http://dx.doi.org/10.1111/obes.12235

Michael Bleaney (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 0 115 951 5265 (Phone)
+44 0 115 951 5141 (Fax)

Lin Yin

Central Party School of the Communist Party of China ( email )

Dayouzhuang 100
Haidian
Beijing
China

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