What Do We Now Know About Currency Unions?

33 Pages Posted: 2 Aug 2006

See all articles by Michael J. Artis

Michael J. Artis

University of Manchester - Institute for Political & Economic Governance (IPEG)

Date Written: May 2006

Abstract

The paper presents the text of a lecture given at the Bank of England in December 2005 as the first in a series of lectures in memory of John Flemming. It provides a personal view of what the profession has learnt about currency unions as a result of the establishment and operation of the European Monetary Union. It argues that the salience of business cycle concurrence as a criterion for participation is probably less than used to be understood and for some countries borders on irrelevance. In any case the effects of union upon business cycle concurrence are themselves not obvious. It also appears that, after a period in which very large estimates of the trade effect of currency unions were widespread, more modest estimates are in order. The most unlooked-for effect is probably that which has occurred in the financial markets; country premia within the EMU are very small, offering a means for insurance against asymmetric shocks. Finally, the lessons of another, local, experiment in currency union is examined. But the useful lessons from this experiment (Ecco L'Euro) are found to be limited.

Keywords: Currency union, EMU, optimal currency area theory

JEL Classification: E0, E4, F1

Suggested Citation

Artis, Michael J., What Do We Now Know About Currency Unions? (May 2006). CEPR Discussion Paper No. 5677, Available at SSRN: https://ssrn.com/abstract=921816

Michael J. Artis (Contact Author)

University of Manchester - Institute for Political & Economic Governance (IPEG) ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

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