Optimal Currency Areas: A Fresh Look at the Traditional Criteria

  • Paul R. Masson
  • Mark P. Taylor


In this paper we reconsider the traditional criteria which are usually advanced as the prerequisites of successful monetary unions or, indeed, as the defining characteristics of “optimum currency areas.” Monetary, or exchange-rate unions, can be defined as areas within which exchange rates bear a permanently fixed relationship to each other. In the absence of capital controls, there can exist only one monetary policy in such areas.2 In the limit, such areas of exchange stability might also involve the replacement of the currencies of member countries by a common currency, that is, the formation of a common currency area or currency union. The implications for monetary policy independence are however the same for monetary and currency unions, so the two will be treated together in what follows.3 In this paper, some empirical evidence relevant to these criteria is presented for Canada, the United States, and for other currency unions where requisite data are available; the same measures are also calculated for European countries which are members of the European Monetary System (EMS).4 Attempts to simulate macroeconomic models in order to analyze the nature of shocks facing economies are also surveyed.


Exchange Rate Monetary Union Capital Mobility Currency Area Currency Union 
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© Springer Science+Business Media New York 1994

Authors and Affiliations

  • Paul R. Masson
  • Mark P. Taylor

There are no affiliations available

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