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Open Economies Review

, Volume 22, Issue 5, pp 935–954 | Cite as

Optimum Currency Areas in Emerging Market Regions: Evidence Based on the Symmetry of Economic Shocks

  • Stefan Eichler
  • Alexander Karmann
Research Article

Abstract

This paper examines which emerging market regions form optimum currency areas (OCAs) by assessing the symmetry of macroeconomic shocks. We extend the output-prices-VAR framework by adding net exports and the real effective exchange rate as endogenous variables. Based on theoretical considerations, we derive which shocks affect these variables in the long run: shocks to labor productivity, foreign trade, labor supply, and money supply. The considered economies of Central and Eastern Europe, the Commonwealth of Independent States, East and Southeast Asia, and South Asia, exhibit large enough shock symmetry to form a currency union; the economies of Africa, Latin America, and the Middle East do not.

Keywords

Optimum currency area Structural vector autoregression 

JEL classification

F33 F36 F41 F42 

Notes

Acknowledgements

We thank two anonymous referees and the Editor for very helpful comments.

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Technische Universitaet DresdenDresdenGermany

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