The Standard Approach: The Theory of Optimum Currency Areas
The Standard Approach: The Theory of Optimum Currency Areas
Optimum currency area (OCA) theory is basically concerned with an analysis of the costs and benefits of monetary integration, that is, the costs and benefits of flexible exchange rates relative to those of pegged exchange rate regimes or full monetary unification. This chapter discusses the costs and benefits of monetary integration along the lines of OCA theory and evaluates whether East Asia satisfies the conditions for an OCA. It shows that East Asia is not much further away from optimality than today’s euro area was maybe ten or twenty years ago.
Keywords: OCA, monetary integration, costs, benefits, exchange rates, East Asia
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