The optimality of EMU - A comparative study

University essay from Göteborgs universitet/Institutionen för nationalekonomi med statistik

Abstract: The aim of this macroeconomic study is to evaluate whether the Economic and Monetary Union (EMU) has become an optimum currency area (OCA) or not. To reach a conclusion about the optimality of EMU we have performed two analyses where the first one evaluates the potential impacts of an expansionary monetary policy in Germany, France, Greece and Cyprus. The second analysis compares the properties of the early OCA theory with the characteristics of EMU. Our findings suggests that the EMU is far from complete since the theoretical properties are not fully met in terms of, inter alia, labor mobility and fiscal and political integration. The result of the first part of the analysis also supports this conclusion since it proclaims that one size of monetary policy does not fit the current needs of all member countries. We can conclude that EMU has met several obstacles and for the EMU to be able to manage challenges ahead it needs to enhance the properties in order to become an OCA.

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