Optimum currency area. Is a fixed exchange rate regime more suitable than a flexible one?

Table of Contents

1. Introduction

2. History and Development of the Theory of Optimum Currency Area
2.1 The “pioneering Phase”: from the early 1960s to the early 1970s
2.1.1 Price and wage flexibility
2.1.2 Mobility of factors of production including labor
2.1.3 Financial market integration
2.1.4 The degree of economic openness
2.1.5 The diversification in production and consumption
2.1.6 Similarities of inflation rates
2.1.7 Fiscal integration
2.1.8 Political integration
2.2 The “Reconciliation Phase” – the 1970s

3. The “Reassessment Phase:” – the 1980s and Early 1990s
3.1. The first try to establish a European currency
3.1.1 The end of World War II
3.1.2 Creation of the European Monetary System (EMS)
3.1.3 Preparation for the European Economic and Monetary Union (EMU)
3.2 The “Empirical Phase:” – from the 1980s to today

4 Fixed exchange rate and flexible exchange rate in an OCA
4.1 To Fix or to Float: the influence of Friedman in the 1950s
4.2 Mundell’s models
4.2.1 OCA with stationary expectations
4.2.2 OCA with international risk sharing
4.3 Extensions of the OCA theory

5 Fixed versus flexible exchange rates
5.1 The case for flexible exchange rates
5.1.1 Monetary Policy Autonomy
5.1.2 Trade Balance Adjustments
5.2 The case for fixed exchange rates
5.2.1 Monetary Discipline
5.2.2 Speculation
5.2.3 Uncertainty
5.2.4 Trade Balance Adjustments

6 Conclusion

7 Literature

8 Internet Sources

9 Appendix