Endogeneities of Optimum Currency Areas

This chapter brings together several strands of the literature on the endogenous effects of monetary integration. There are four areas that we analyse in this context: the endogeneity of economic integration, in which we look primarily at evidence on prices and trade; the endogeneity of financial integration or equivalently insurance schemes that can be provided by capital markets; the endogeneity of symmetry of shocks and (similarly) at synchronisation of outputs; and the endogeneity of product and labour market flexibility. The paper presents a conceptual framework within which to discuss such endogeneities. There is then a discussion of different arguments and an exploration of the empirical literature to gauge their quantitative importance. JEL classification: E42, F13, F33 and F4