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Oxford Economic Papers Advance Access originally published online on March 1, 2005
Oxford Economic Papers 2005 57(3):373-397; doi:10.1093/oep/gpi022
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Right arrow E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution
Right arrow E32 - Business Fluctuations; Cycles
Right arrow E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System
Right arrow E52 - Monetary Policy (Targets, Instruments, and Effects)
Right arrow F33 - International Monetary Arrangements and Institutions
Right arrow R11 - Regional Economic Activity: Growth, Development, and Changes
Right arrow R23 - Regional Migration; Regional Labor Markets; Population
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© Oxford University Press 2005; All rights reserved

Regional cyclical asymmetries in an optimal currency area: an analysis using US state data

Mark D. Partridge* and Dan S. Rickman{dagger}

*Department of Agricultural Economics, University of Saskatchewan {dagger}Department of Economics, 338 College of Business, Oklahoma State University, Stillwater, OK 74078, USA e-mail: rdan{at}okstate.edu

Two key assumptions are often used in assessing the feasibility of a common currency area (CCA). First, asymmetric shocks increase the costs of forming a CCA. Second, the US represents a useful benchmark for evaluating a potential CCA. Changes in the asymmetry of US regional cycles, however, are rarely examined. Therefore, this study examines the synchronization of US regional business cycles for 1971–98. The results reveal that US state cyclical asymmetries changed over time, with synchronization appearing to decline by the latter 1980s. This suggests that the US was less likely to fit CCA criteria in the 1990s, which conflicts with its apparent successful monetary-policy experience. Yet, this seeming contradiction can be explained by a tradeoff between the volatility of the common-national business cycle and regional synchronization. Given that the volatility of an area's common shock can change regularly, these findings have implications for the assessment of all CCAs.

Key Words: JEL classification: E42 • E32 • F33 • R11


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