An Incomplete Optimal Currency Area: The Issue of Migration in the Eurozone

Johannes Kabderian Dreyer, Mads Byskov Graversen

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

The main objective of this study is to test if the Eurozone a decade after its launch can be considered an optimal currency area (OCA) as defined by Mundell (1961). In an OCA, asymmetric shocks – as the ones experienced by the Eurozone following the recent financial crisis – may be dampened by two instruments: fiscal transfers from one country to another, or migration. As fiscal transfers in the Eurozone are low, we study the economic significance of migration flows as automatic stabilizers of the currency area. We assume that there is a strong relationship between unemployment and relative wealth on migration rates. We use panel regressions to test these relationships and find out that migration between member states is very low after the Euro’s first decade. Combined with the lack of significant fiscal transfers we conclude that the currency union is still not an OCA.
Original languageEnglish
JournalReview of Business Research
Volume14
Issue number2
Pages (from-to)61-72
Number of pages12
ISSN1546-2609
Publication statusPublished - 2014
EventIABE Verona Summer conference 2014 - Verona, Italy
Duration: 27 Jun 201429 Jun 2014
http://iabe.org/domains/iabeX/Documents/2014%20Verona/Live%20Documents/Call%20For%20Papers/VERONA%202014%20Call%20for%20Papers.pdf

Conference

ConferenceIABE Verona Summer conference 2014
Country/TerritoryItaly
CityVerona
Period27/06/201429/06/2014
OtherInternational Academy of Business and Economics
Internet address

Keywords

  • Eurozone
  • Optimal Currency Area
  • Labor mobility

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