NDLI: Conditions for Optimality of a Currency Area

Content Provider	Springer Nature Link
Author	Demopoulos, George D. Yannacopoulos, Nicholas A.
Copyright Year	1999
Abstract	Two approaches to the theory of OCA are distinguished in this paper. The first, called the marginalistic approach, attempts to define the OCA from the point of view of a single country, and the second examines the optimality of a currency area of a given membership. The marginalistic approach and its limitations are discussed first. Then, the paper proceeds to the second approach which is discussed in the context of the cooperative game theory in characteristic function form; it argues that a currency area is optimal when the welfare functions of its constituent members are in the core. This implies that the welfare functions of all constituent members of the currency area are maximized and hence they are all better off with a common currency rather than with their own national currencies; hence, no member country has the intention to abandon the currency area. The paper concludes that the condition for the optimality of a currency area independently of the degree of economic similarity of its constituents requires that the characteristic function must exhibit non decreasing returns with respect to its size.
Starting Page	289
Ending Page	303
Page Count	15
File Format	PDF
ISSN	09237992
Journal	Open Economies Review
Volume Number	10
Issue Number	3
e-ISSN	1573708X
Language	English
Publisher	Kluwer Academic Publishers
Publisher Date	1999-01-01
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Development Economics International Economics
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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