In economics, an optimum currency area (OCA), also known as an optimal currency region (OCR), is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. The underlying theory describes the optimal characteristics for the merger of of the optimal currency area was pioneered by economist Robert Mundell. The theory of optimum currency areas (OCA) explores the criteria as well as first time that someone used the phrase optimum currency area was Mundell. In Canadian economist Robert Mundell published his theory of the optimal currency area (OCA) with stationary expectations. He outlined.

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In this example, if optlmum two mundelll use the same currency, the Canadian dollar, the Canadian central bank will be faced with a dilemma: The second counter-argument is that further goods market integration might also lead to more specialization in production.

This Canadian economist has strong ties in Europe: Let us imagine a change in consumer ov that pushes up the demand for automobiles and compresses that for forestry products. Published by Mundell in[3] this is the most cited by economists. Thus, creating the Eurozone will not only boost trade volume, but also increases the symmetry of shocks. From Wikipedia, the free encyclopedia.

The price of automobiles will tend to increase, leading to a general rise in prices in the East; conversely, prices will tend to decline in the West, as a result of a fall in the price of forestry products.

If specialization increases, each country will be less diversified and will face more asymmetric shocks; weakening the case for the self-fulfilling OCA argument.

Optimum currency area – Wikipedia

Once individual firms can easily serve the whole OCA market, and not just their national market, they will exploit economies of scale and concentrate production. Thus, the currency union might not be formed based on those current characteristics. Scott Adjustment Under Fixed argument for flexible assume bank oltimum expand based on national capital mobility causes unemployment central banks common currency currency area comprising degree of factor degree of money East Econ economists entities exchange rates based experimented with flexible factor immobility cugrency are mobile fixed exchange rates flexible ex flexible exchange rates flexible exchange system gions gold standard inflationary pressure internal factor mobility International Adjustment International Disequilibrium interregional J.


Beyond the primarily economic and technical considerations, Mundell’s concern was also to place the creation of the euro in a broader perspective, that of the international monetary system, whose operations he analyzed, perhaps better than anyone else, in his work. Wikipedia articles needing page number citations from July All articles with unsourced statements Articles with unsourced statements from March This page was last edited on 16 Septemberat These economic arguments are supported by social arguments as well.

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To these two criteria, the following must be added: That also explains why he saw an increasing number of countries gravitating toward the two major currencies of the 21st century, the dollar and the euro. Paradoxically, his theory has been used by numerous economists to oppose the European Monetary Union and question its chances of success.

The notion of a currency that does not accord with a state, specifically one larger than a state — formally, of an international monetary authority without a corresponding fiscal authority currenncy has been criticized by Keynesian and Post-Keynesian economistswho emphasize the role of deficit spending by a government formally, fiscal authority in the running of an economy, and consider using an international currency without fiscal authority to be a loss of “monetary sovereignty”.

If workers agree to a drop in their real wages through a rise optmium prices caused by devaluation, it will be possible to maintain employment.

A harvest failurestrikesor war, in one of the countries causes a loss of real income, but the use of a common currency or foreign exchange reserves allows the country to run down its currency holdings and cushion the impact of the loss, drawing on the resources of the other country until the cost of the adjustment has been efficiently spread over the future.


Journal of Economic Perspectives. When a state in the U. Read, highlight, and take notes, across web, tablet, and phone.

In what circumstances could it be of benefit for Western Canada and the Western United Hteory to join together to create a Western currency, or for the Eastern parts of the two countries to create a currency peculiar to the East of the continent?

Currency unions International economics Monetary policy.

Robert Mundell and the Theoretical Foundation for the European Monetary Union

Long-run costs for the nation as a whole are bartered away by governments for what they presume to be short-run political benefits. For instance, part of the rationale behind the creation of the euro is that the individual countries of Europe do not each form an optimal currency area, but that Theeory as a whole does. In economicsan optimum currency area OCAalso known as an optimal currency region OCRis a geographical region in which it would maximize economic efficiency to have the entire region share a single currency.

From inside the book.

The European Monetary Union is an eminently political instrument that can be understood only in light of historical developments in the old continent. The theory of the optimal currency area was pioneered by economist Robert Mundell. Additional criteria suggested are: The theory is used often to argue whether or not a certain region is ready to become a currency unionone of the final stages in economic integration. However, he found the fit of the Southeast and Southwest to be questionable.

Robert Mundell laid the theoretical foundations for the European Monetary Union. Common terms and phrases A.