Is Europe an Optimum Currency Area?

  • Barry Eichengreen


An optimum currency area (OCA) is an economic unit composed of regions affected symmetrically by disturbances and between which labour and other factors of production flow freely (Mundell, 1961). Insofar as regions within the OCA experience the same shocks, there is no obvious advantage to altering relative prices between them. Insofar as localized concentrations of unemployment nonetheless remain, the free mobility of labour from high- to low-unemployment regions can eliminate the problem. It is hence optimal to dispense with one of the principal instruments — changes in the exchange rate — traditionally used to effect relative price adjustments, and to reap the benefits, in terms of convenience and efficiency, of a common currency.


Exchange Rate Real Exchange Rate Share Price Unemployment Insurance Labour Mobility 
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Copyright information

© Silvio Borner and Herbert Grubel 1992

Authors and Affiliations

  • Barry Eichengreen
    • 1
  1. 1.University of California at BerkeleyUSA

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