A Formal Model of Optimum Currency Areas

22 Pages Posted: 15 Feb 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Date Written: April 1994

Abstract

A model of optimum currency areas is presented using a general equilibrium model with regionally differentiated goods. The choice of a currency union depends upon the size of the underlying disturbances, the correlation between these disturbances, the costs of transactions across currencies, factor mobility across regions, and the interrelationships between demand for different goods. It is found that, while a currency union can raise the welfare of the regions within the union, it unambiguously lowers welfare for those outside the union.

JEL Classification: F33, F36

Suggested Citation

Bayoumi, Tamim, A Formal Model of Optimum Currency Areas (April 1994). IMF Working Paper, Vol. , pp. 1-20, 1994. Available at SSRN: https://ssrn.com/abstract=883499

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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