Reflections on the Optimal Currency Area (oca) Criteria in the Light of EMU

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  • 1 January 2002
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Abstract
The objective of this paper is first to review the use that has been made of Optimal Currency Area (OCA) theory in the European Monetary Union (EMU) context. Second, to look at some of its predictions in that respect. And third, to appraise some of the new theories - or speculations - that have arisen, partly as a result of the confrontation of the theory with the data. This is an area in which politics are very important; they play an important role in the reception and interpretation of positive work. Tentative ideas and speculative hypotheses acquire the aura of accomplished fact, whilst a single empirical illustration can be given the status of a many-times confirmed demonstration. This paper tries to be more careful in these remarks. Whilst history offers some instructive lessons, as illustrated for example in the work of Bordo and Jonung (1999), the fact is that in most relevant respects EMU represents an unparalleled experiment, with corresponding difficulties for empirical work.
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