Constructing a Model-based Optimum Currency Area Index
نویسنده
چکیده
The EU acceding countries are supposed to adopt the Euro as soon as economic convergence is achieved. This paper offers a methodology to quantify the economic consequences of an acceding country’s EMU entrance. A small macroeconomic two-country model is specified and combined with two different monetary policy regimes: (i) national monetary policy, (ii) monetary union. The performance of the two regimes is analyzed in terms of inflation and output variability. A model-based optimum currency area index is obtained by computing the relative loss in terms of output gap and inflation rate variability in the two monetary policy regimes.
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