CASE STUDY – Optimal Currency Areas (OCAs)
The Canadian economist, Robert Mundell, provided the theoretical basis of an optimal currency area (OCA) in the 1960s. OCAs have pros and cons. For example, the United States of America can be looked at as an OCA consisting of 50 States. Likewise, the Eurozone consists of 19 countries in the European Union that are part of the Euro.
Some potential journal articles that might be used in your answers:
Artis, M. J. (2003) ‘Reflections on the optimal currency area (OCA) criteria in the light of EMU’, International Journal of Finance & Economics, 8(4), pp. 297–307. doi: 10.1002/ijfe.211.
Prasch, R. E. (2001) ‘The Economic Contributions of Robert A. Mundell’, Review of Political Economy, 13(1), pp. 41–58. doi: 10.1080/09538250150210577.
Chaban, M. and Voss, G. M. (2016) ‘Is Canada an optimal currency area? An inflation targeting perspective’, Canadian Journal of Economics, 49(2), pp. 738–771. doi: 10.1111/caje.12212.
Alesina, A., Barro, R. J. and Tenreyro, S. (2002) ‘Optimal Currency Areas’, NBER/Macroeconomics Annual (MIT Press), 17(1), pp. 300–345.
Case Study Questions:
Please provide a critical discussion and an in-depth analysis to address the questions. You may use any sources to help in your answers. All sources must be referenced.
Discuss criteria in forming an OCA along with the pros and cons of an OCA. Then, critically analyze the United States and the Eurozone as viable OCAs.
(50 marks)
During the Euro Crisis that began in 2010, discuss the experience of Ireland and Greece with a focus on the cons of being part of the Eurozone. In other words, what were the specific constraints of being in an OCA (Eurozone) that made the crisis worse in both countries?