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TRANSCRIPT
Is the EMU an Is the EMU an OCA?OCA?
Theories of Optimum Currency Area
Team Members:García Mora, NataliaRivero Silva, Paula
Lecturer:Javier Quesada
Macroeconomics International Group
What everybody knows
• The EMU it is a currency area but not an Optimum one.
• There is high potential to be a good OCA but two issues are not satisfied
1 - Not a full Economic Integration
2 - No Fiscal Integration
Conditions
• 1st: Synchronization of business cycles
• 2nd: Labour Mobility
• 3rd: Intra-Trade
Core Regio
n
Periphery
Region
1st C: Synchronization Business Cycles
Real Growth Rates
•Data Source: OECD Data Bank
Core-Region
Highlights
•High convergence
•Almost equal capacity to recover
and speed of adjustment
•Clear synchronization of cycles: expansion
and recession
•Data Source: OECD Data Bank
Periphery Region
Highlights
•No clear convergence
•Lower ability and speed to recover
•Data Source: OECD Data Bank
1st Conclusions • FIRST GROUP OF
COUNTRIES
• Better ability to recover and react to the shocks of business cycles
• Crisis depression: this region decrease quicker and with a higher level
• Expansion: this countries are able to grow quicker
• HIGHER FLEXIBILITY AND SPEED OF ADJUSTMENT
• SECOND GROUP OF COUNTRIES
• Less ability to recover and react to the shocks of business cycles
• Crisis depression: decrease slowly
• Expansion: this countries are able to grow slowly.
• LOWER FLEXIBILITY AND SPEED OF ADJUSTMENT
2nd C: Labour Mobility
•Data Source: Eurostat Satistics
Highlights•Benefits from the
monetary union
•Demand for low skilled workers
•Two main sectors:
construction+services
•Inward Migration Patterns (2000-08) vs. traditional ones
•Data Source: Eurostat Satistics
Highlights• Relation between unemployment rates and migration trends
•The main reasons for migrating: job seeking boost in construction and service sectors (booming period)
• Crisis affected specially periphery countries outward migration patterns • Beginning of labour mobility first steps?
•Data Source: Eurostat Satistics
Highlights
• Relation: unemployment + educational level
• The higher the education level
tertiary level lower risk of unemployment
• Spain is quite similar for the three categories
• Young unskilled are
the first on loosing their jobs
• Migration during the booming period – low
education level
• Droop out of schools quick money from construction sector
• Change in the actual generation rising
academic share
•Data Source: Eurostat Satistics
2nd Conclusions • Labour Mobility is still very low across the EMU countries
• Certain kind of barriers to move:
-Cultural Factors
-Language
- Economic Incentives not so high
• Labour mobility as a mechanism of adjustment still slow and takes time to get over the asymmetric shocks
• Even though there is a relief for markets thanks to Outward Migration
• Assumption part of the inward migration during the booming period have already left
In order to impulse mobility some reforms should take place:
• Common provision
• Basic health insurances as instance
•Pension plans and unemployment securities
3rd C: Intra-Trade Degree
•Data Source: OECD Data Bank
• The degree of trade integration across Europe:
− is quite variable
−but quite high on average.
−appears to have been rising over time in nearly every country
− it has increased most strongly on average over the last five years or so of data.
• Being a member of a currency union may enhance the degree of trade between members of the union, precisely because of the decline in transactions costs in carrying out such trade.
• Many European countries have gained a great deal from the reduction in transactions costs in international trade as a result of the single currency.
3rd Conclusions
Comments + General Conclusions
• Europe need a bigger and deeper political and economic centralization (critized)
• EMU could work property but not all the countries that belongs to it fulfil the necessary condition to be a part of an OCA
• Little evidence of per capita GDP convergence.
• Real growth dispersion on a declining trend low degree of business cycle synchronization
• Labour mobility does not work as a mechanisim of adjustment
• Not clear evidence of Intra-Trade benefits
The art of economics “It keeps cropping up all over the place. There is economics
of money and trade, of production and consumption, of distribution and development. There is also an economics of welfare, manners, language, industry, music, and art. There is an economics of war and a economics of power. There is even an economics of love. Economics seems to apply to every nook and cranny of human experience. It is an aspect of all conscious action. Whenever alternatives exist, life takes on an economic aspect . It has always been so. But how can it be? It can be because economics is more than jus the most developed of the sciences of control. It is a way of looking at things, and ordering principle, a complete part of everything. It is a system of thought, a life game, an element of pure knowledge.”
Robert A. Mundell
Thanks for your attention