A Model of an Optimum Currency Area

IMF Working Paper No. 97-76

Posted: 12 Mar 1998

See all articles by Luca A. Ricci

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 5 versions of this paper

Date Written: 1997


This paper investigates the circumstances under which it is beneficial to participate in a currency area. A two-country monetary model of trade with nominal rigidities encompasses the real and monetary arguments suggested by the optimum currency area literature: correlation of real shocks, international factor mobility, fiscal adjustment, openness, difference in national inflationary biases, correlation of monetary shocks, and benefits of a single currency. The effect of openness on the net benefits is ambiguous, contrary to the usual argument that more open economies are better candidates for a currency area. Countries do not necessarily agree on whether a given currency union should be created.

JEL Classification: E42, E52, F02, F31, F33, F36

Suggested Citation

Ricci, Luca Antonio, A Model of an Optimum Currency Area (1997). IMF Working Paper No. 97-76, Available at SSRN: https://ssrn.com/abstract=49737

Luca Antonio Ricci (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

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