Price adjustment in currency unions: another dimension to the endogeneity of the optimum currency area criteria?

Bleaney, Michael; Yin, Lin

Abstract

In a rational expectations model, wages and prices should respond more to shocks in currency unions than under adjustable pegs because of the absence of exchange rate adjustment. This is an aspect of the endogeneity of the optimum currency area criteria that has been largely ignored. Empirical evidence from three currency unions tends to suggest some degree of endogeneity of price flexibility, but the rate of adjustment is slow. Self-selection into currency unions by countries with naturally greater price flexibility does not appear to be a significant factor.

Citation

Bleaney, M., & Yin, L. (2018). Price adjustment in currency unions: another dimension to the endogeneity of the optimum currency area criteria?. Oxford Bulletin of Economics and Statistics, 80(4), 788-803. https://doi.org/10.1111/obes.12235

• Journal Article Type: Article
• Acceptance Date: Dec 20, 2017
• Online Publication Date: Jan 27, 2018
• Publication Date: Aug 31, 2018
• Deposit Date: Feb 14, 2018
• Publicly Available Date: Jan 28, 2020
• Journal: Oxford Bulletin of Economics and Statistics
• Print ISSN: 0305-9049
• Electronic ISSN: 1468-0084
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 80
• Issue: 4
• Pages: 788-803
• DOI: https://doi.org/10.1111/obes.12235
• Public URL: https://nottingham-repository.worktribe.com/output/906984
• Publisher URL: http://onlinelibrary.wiley.com/doi/10.1111/obes.12235/abstract
• Additional Information: This is the peer reviewed version of the following article: Bleaney, M. and Yin, L. (2018), Price Adjustment in Currency Unions: Another Dimension to the Endogeneity of the Optimum Currency Area Criteria?. Oxf Bull Econ Stat., which has been published in final form at http://dx.doi.org/10.1111/obes.12235. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
• Contract Date: Feb 14, 2018