Abstract: | This paper examines which emerging market regions form optimum currency areas (OCAs) by assessing the symmetry of macroeconomic
shocks. We extend the output-prices-VAR framework by adding net exports and the real effective exchange rate as endogenous
variables. Based on theoretical considerations, we derive which shocks affect these variables in the long run: shocks to labor
productivity, foreign trade, labor supply, and money supply. The considered economies of Central and Eastern Europe, the Commonwealth
of Independent States, East and Southeast Asia, and South Asia, exhibit large enough shock symmetry to form a currency union;
the economies of Africa, Latin America, and the Middle East do not. |