The traditional theory of Optimum Currency Areas Currency area is defined as the domain within which exchange rates are fixed (Mundell/1961). The benefits of a common currency are mainly microeconomic efficiency gains because of absence of transaction costs and ER risks and the costs are mainly macroeconomic loss of instrument of economic policy and adjustment mechanism. There is a difference between interregional adjustment and international adjustment even the exchange rates are fixed. The theory of …
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showed last 75 words of 2311 total
…more countries. And one thing should be mentioned that politics are beyond cost-benefit analysis. References Mundell, Robert(1961) A theory of Optimal Currency Areas, American economic review McKinnon, Ronald(1963) Optimum Currency Areas, American economic review Bayoumi and Eichengreen( 1997) Ever closer to heaven? An Optimum currency area Index for European countries, European economic review De Grauwe, Paul (1997) The economics of monetary integration/ 4th edition Bofinger, Peter(1994) Is Europe an Optimum currency Area?/ 30 years of European monetary integration