Operationalizing the Theory of Optimum Currency Areas
CEPR Discussion Paper Series No. 1484
Posted: 13 Mar 1997
Date Written: September 1998
We show that the variables pointed to by the theory of optimum currency areas (OCAs) help to explain patterns of exchange rate variability and intervention across countries. But OCA considerations affect exchange market pressures and intervention in different ways. Exchange market pressures mainly reflect asymmetric shocks, while intervention largely reflects the variables that OCA theory suggests cause countries to value stable exchange rates (small size and the extent of trade links). Intervention and exchange market pressure also vary with the structure of the international monetary system.
JEL Classification: F33, F36
Suggested Citation: Suggested Citation