A Formal Model of Optimum Currency Areas

Author/Editor:

Tamim Bayoumi

Publication Date:

April 1, 1994

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

A model of optimum currency areas is presented using a general equilibrium model with regionally differentiated goods. The choice of a currency union depends upon the size of the underlying disturbances, the correlation between these disturbances, the costs of transactions across currencies, factor mobility across regions, and the interrelationships between demand for different goods. It is found that, while a currency union can raise the welfare of the regions within the union, it unambiguously lowers welfare for those outside the union.

Series:

Working Paper No. 1994/042

Subject:

Economic integration Employment Exchange rates Foreign exchange Labor Labor demand Monetary unions

Notes:

Also published in Staff Papers, Vol. 41, No. 4, December 1994.

English

Publication Date:

April 1, 1994

ISBN/ISSN:

9781451846171/1018-5941

Stock No:

WPIEA0421994

Pages:

22

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