657-665. sions if the Eurozone could actually be classi-fied as an optimum currency area and if the decision of unifying various EU member states under one common currency has been right. An Optimal Currency Area: An optimal currency area is an area where a common currency is used and brings more economic benefits. According to the theory of optimal currency areas, which Columbia’s Robert Mundell helped to pioneer, for a common currency to succeed its … This is a deviation from the early discussion on optimum currency areas. For all those interested in "Optimum Currency Areas" - my new infoposter "ECONOMICS" is now available: - the poster gives an overview of the development of economic theory from its beginnings. This contributed to creation the "new ” theory of optimum currency area and arising of debate on sizes of currency area and deadline of the currency area creation Tavlas (1993). When analysing the impact of monetary unions on the members’ economic performance, there are positive and negative effects. 69. Reconsideration of the Theory of Optimal Currency Area." The "New" Optimal Currency Area Theory: The traditional optimal currency area approach draws its insights largely from an economic environment in which there exists short-run price stickiness and employment adjustment to shocks, accompanied by a longer-run inflation-employment tradeoff. An optimum currency area (OCA) is defined here as the optimal geographic domain of a single currency, or of several currencies, whose exchange rates are irrevocably pegged and might be unified. 8783 February 2002 JEL No. THE THEORY OF OPTIMUM CURRENCY AREAS taking each nation and national currency as an indivisible unit to con-stitute a currency area. East Asian countries, including China and India, according to the optimum currency area theory criteria, which is operationalized through the use of cluster analysis. In terms of this argument alone, the optimum currency area is the world, regardless of the number of regions of which it is composed. According to the Nobel Prize Committee, he got the honor for "his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas". Conflicting opinions regarding the criteria that have to be fulfilled in order to meet the requirements of an OCA as well as regarding the question whether EMU is an OCA are described. In some of the surveys, it is noted that the theory of optimum currency areas has come under criticism. Prize-winning Canadian economist Robert Mundell, who first described in the 1960s what is today known as the theory of optimal currency areas (OCA). But a nation with numerous economically nonhomogeneous subregions can be viewed as a homogeneous entity The theory of Optimum Currency Areas (OCA) is a macroeconomic instrument which defines criterions under which it would create the greatest economic benefit for a … Countries of the currency area have differing business cycles b. According to this theory, the gains t view the full answer. Previous question Next question Get more help from Chegg. The theory of optimum currency areas (OCA) explores the criteria as well as the costs and benefits of entering/forming a common currency area. In this thesis aspects of the European Economic and Monetary Union are presented, especially from the perspective of the theory of optimum currency areas. The Theory of Optimum Currency Areas is based on the contribution of Robert Mundell, the pioneer of specific field researches (1961) – the issue being subsequently resumed by other economists, such as R. Mc Kinnon (1963), Kenen (1969) etc. According to Optimum Currency Area (OCA) theory, a country should achieve a sufficient level of trade-openness, labour flexibility and synchronicity of business cycles for the benefits of … In addition, the OCA theory can be viewed as a tool for finding an answer to the question on how to choose the optimum exchange rate regime. An optimum currency area (OCA) is a theoretical notion. - the poster shows the historical roots of economic ideas … Optimum currency area, a currency area in which the benefits of using a common currency outweigh the costs of individual economies’ giving up their own currencies. According to the Theory of Optimum Currency Areas as developed by the Canadian Nobel laureate, Robert Mundell, countries must fulfil several convergence criteria … Self-Validating Optimum Currency Areas Giancarlo Corsetti and Paolo Pesenti NBER Working Paper No. Figure 2.1: Optimistic view Figure 2.2: Pessimistic view Slide 7 2. ... integration approach to optimal currency areas’, according to which, from a technical economic point of view, all regions or nations linked by unrestricted international mobility of financial capital form an optimal currency area. E5, F4 ABSTRACT In this paper we show that a currency area can be a self-validating optimal policy regime, even when monetary unification does not foster real economic integration and intra-industry trade. Because monetary union is not just a technical monetary, Mundell analyzed the criteria underlying an appropriate functioning of the Monetary Union ever since the European Monetary Union was still at the draft stage. The single currency, or the pegged currencies, can fluctuate only in unison against the rest of the world. There are two other factors that would inhibit the … Workers have a high degree of mobility across borders of the currency area c. Prices and wages can be adjusted in response to economic disturbances d. The theory of optimum currency areas determines the characteristics that are necessary so that monetary unions can be optimal, and therefore sustainable and economically efficient in the long run. These articles drew on contemporary debates about fixed versus flexible exchange rates, treating a com-moncurrencyastheextremecaseofafixedexchange optimum currency area (OCA) theory Optimum currency area (OCA) theory originates from two seminal articles in the early 1960s by the economistsMundell(1961)andMcKinnon(1963). 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