Abstract. The movement of some members of the European Union towards a common currency area is likely to spark interest in other possible common currency areas. One such area of interest is a North American common currency area. In this paper some results from tests of microeconomic foundations of a North American common currency area are presented. These results can be viewed as favourable for the formation of a North American common currency area. JEL classification: F33, F36
AbstractThe concept of an optimum currency area has previously been developed using macroeconomic policy results and factor mobility as the criteria for the optimum extent of a common currency area. In this paper, microeconomic foundations for an optimum currency area are set forth. These microeconomic foundations are requirements for a common currency area to exist. One can test for consistency with these microeconomic foundations. Procedures for such tests are discussed. Some preliminary results are presented from tests of whether or not the Euro Area economies constitute a common currency area. The test results tentatively suggest that the Euro Area countries may encounter problems in their attempt to establish a common currency.
We estimate an asymptotically ideal model of the demand for UK personal sector monetary assets. We use data that are consistent with utility‐maximizing behaviour, and find that UK monetary assets are generally substitutes in use. The estimated elasticities of substitution during the 1980s and the early 1990s indicate that a relatively broad monetary aggregate should be used in economic studies. The results also suggest that any policy based on interest or user cost elasticities of substitution between financial assets should be based on the Morishima elasticities, as the Allen–Uzawa calculation can give misleading results.
AbstractThe June 2016 UK referendum on continued EU membership where the people of Scotland voted to remain, while the rest of the United Kingdom voted to leave, once again makes the issue of whether Scotland is an optimal currency area very topical. England voted strongly to leave Europe while Scotland backed remain by 62% to 38%. The Scottish government published its draft bill on a second independence referendum in October 2016. The move does not mean another referendum will definitely be held, but this does raise the possibility that Scotland might choose independence and staying in the EU without the rest of the United Kingdom. If Scotland charts a course of independence from the rest of the United Kingdom, then they would likely either issue their own currency or join or form another currency area.In this paper, we test the microeconomic foundations of a common currency area for Scotland, United Kingdom, and the rest of the United Kingdom without Scotland. We find that the United Kingdom, Scotland, and the United Kingdom without Scotland all meet the microeconomic criteria for a common currency area. In contrast, banking data suggest that lending in Scotland is different from lending in the rest of the United Kingdom, adding some doubt to the issue of whether or not Scotland is a common currency area with the United Kingdom.
