Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas

37 Pages Posted: 25 Apr 2005

See all articles by Stefano Schiavo

Stefano Schiavo

University of Trento - Department of Economics and Management; OFCE

Date Written: April 2005

Abstract

The paper analyzes the relationship between trade, financial integration and business cycle synchronization in the euro area. The introduction of the euro has had a noticeable impact on European financial markets: we find evidence that capital markets integration exerts a positive effect on output correlation. This in turn has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries fit better standard OCA criteria; second, it provides European policymakers with yet another reason to purse financial integration in the euro area (and in prospective members as well).

Keywords: OCA, EMU, financial integration, GDP correlation

JEL Classification: F15, F36

Suggested Citation

Schiavo, Stefano, Financial Integration, GDP Correlation and the Endogeneity of Optimum Currency Areas (April 2005). Available at SSRN: https://ssrn.com/abstract=706862 or http://dx.doi.org/10.2139/ssrn.706862

Stefano Schiavo (Contact Author)

University of Trento - Department of Economics and Management ( email )

via Inama, 5
Trento, 38100
Italy

OFCE

Valbonne, 06560
France

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