CO SCI 136 Lecture Notes - Lecture 9: Optimum Currency Area, Eurozone, Real Interest Rate
Globalisation
Vorlesung 9 – Debates on financial globalisation
Is the EU an Optimum Currency Area?
If the EU/ EMS/ economic and monetary union can be expected to benefit members, we expect that
its members have a high degree of economic integration:
• Large trade volumes as a fraction of GDP
• A large amount of foreign financial investment and foreign direct investment relative to total
investment.
• A large amount of migration across borders as a fraction of total labour force
Unemployment Rates in selected EU countries
Widely divergent unemployment rates moved closer together after the euro’s launch in 1999 but
since the late 2000s have moved sharply apart.
Deviations from the law of one price also occur in many EU markets.
• If the EU markets were greatly integrated, then the (currency-adjusted) prices of goods and
services should be nearly the same across markets
• The price of the same BMW car varies 29,5% between British and Dutch Markets.
Regional migration is not extensive in the EU.
Europe has many languages and cultures, which hinder migration and labour mobility.
Unions and regulations also impede labour movements between industries and countries.
Differences od U.S. unemployment rates across regions are smaller and less persistent than
differences of national unemployment rates in the EU, indicating a lack of EU labour mobility.
People Changing Region of Residence in the 1990s (percent of total population)
Assets of Some Individual Banks as a Ratio to national Output (2011)
Nominal Government Borrowing spreads over Germany
Euro countries’ long-term government bond yields converged to Germany’s level as they prepared to
join the Euro. The yields began to diverge again with the global financial crisis of 2007-2009 and
moved sharply apart after the euro crisis broke out late in 2009.
Real Appreciation in Peripheral Euro Zone Countries
Document Summary
If the eu/ ems/ economic and monetary union can be expected to benefit members, we expect that its members have a high degree of economic integration: Large trade volumes as a fraction of gdp: a large amount of foreign financial investment and foreign direct investment relative to total investment, a large amount of migration across borders as a fraction of total labour force. Widely divergent unemployment rates moved closer together after the euro"s launch in 1999 but since the late 2000s have moved sharply apart. Deviations from the law of one price also occur in many eu markets. If the eu markets were greatly integrated, then the (currency-adjusted) prices of goods and services should be nearly the same across markets: the price of the same bmw car varies 29,5% between british and dutch markets. Regional migration is not extensive in the eu. Europe has many languages and cultures, which hinder migration and labour mobility.
