Chapter 2 Essay questions

The theory of optimum currency areas: a critique
  1. Explain why the optimists argue that economic integration leads to less asymmetric shocks.
  2. Explain why the pessimists argue that economic integration leads to more asymmetric shocks.
  3. Why is the existence of nation-states in a monetary union a potential source of asymmetric shocks?
  4. Under what conditions is a centralization of wage bargaining not a good idea in a monetary union.
  5. Are the inflation differentials observed in the Eurozone prior to the crisis mainly the result of the Balassa–Samuelson effect?
  6. Explain why the low-inflation countries in Europe were more reluctant than the high-inflation countries to join the monetary union. What was the effect of this asymmetry in preferences?
  7. Explain why the costs of a monetary union are typically smaller for relatively open economies than for relatively closed ones.
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