72nd International Atlantic Economic Conference

October 20 - 23, 2011 | Washington, USA

The optimum currency area puzzle

Saturday, 22 October 2011: 2:00 PM
Filippo Cesarano, M.A. , Research, Banca d'Italia, 00184 Roma, Italy
The theory of optimum currency areas, suggesting the redrawing of currency areas across countries or splitting of national money into several countries, is at odds with the one-money-one-country pattern that has dominated monetary history for twenty-six centuries. This paper puts forward an equilibrium approach (section 1) which, by stressing the influence of the border effect on intranational adjustment, solves the puzzle and analyzes the closely related issues of the viability of monetary unions (section 2) and regional specialization (section 3).