Monetary Policy as an Optimum Currency Area Criterion

Authors

• Groll
• D.

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The costs and benfits of moving from a flexible exchange rate regime to a monetary union depend critically on the conduct of monetary policy. In particular, whether countries are better off in one or the other currency regime is sensitive not only to the choice of the variables that monetary policy targets, but also to the strength of the response to these target variables. In addition to being an Optimum Currency Area (OCA) criterion itself, monetary policy can modify the nature of traditional OCA criteria, such as the degree of trade openness.

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