ABSTRACT
Does not being an optimum currency area matter for monetary policy?1 Since January 1999 eleven countries in Europe (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Portugal, Spain, and the Netherlands) have shared a common currency. Prior to the formation of this union, there was extensive debate over whether the eleven constituted an optimal currency area. The general consensus was that by the standards laid out in the Mundell (1961) – McKinnon (1963) – Kenen (1969) literature on optimum currency areas, they did not.2 However, despite this, European politicians still concluded that a currency union was worthwhile because of the political benefits it stood to confer.
