Why do countries join an EMU (economic and monetary union)?

To answer this question, it would be useful to start by dissertateing the key possible action of such a compass north, before continuing to handle the costs and benefits of being in such a union. This yield be the crux of our answer to the question, since countries are assumed to be rational actors that would act only if the benefits of joining an EMU outweighed the costs. end-to-end the essay, many examples will be drawn from the EU, which is the best serviceable example of such a union. Definition and Theoretical Beginnings An frugal and pecuniary union can be defined as hit market with a common currency. It involves a higher(prenominal) floor of integration than a currency union e.g. the Latin monetary Union in the 1800s which did not call for a adept market. The EMU may be said to be the fifth map of economic integration according to the theory of the Magyar economist Béla Balassa, which ranks institutions by floor of integration, the introductory being pref erential peck areas, followed by thaw trade areas, customs union, common markets and then EMU; the demise stage in this theory is complete economic integration. The humor of a highly integrated economic and currency union is base on the theory of Optimal Currency Areas (OCA) that was graduation authentic by an American economist Robert Mundell.

In his theory, Mundell claims that cardinal countries should desegregate their currencies if two criteria are satisfied: firstly, countries mustiness be economically similar. In such circumstances, if they faced correlated exogenous shocks, e.g. 2 oil exporters faci ng the rise of oil prices, the essential re! sponses would be similar, and therefore having independent policies would be superfluous. Secondly, labour must be highly mobile between countries. For instance, if Texas tried to shut up a separate monetary policy from the rest of... If you privation to halt a full essay, order it on our website: BestEssayCheap.com

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