ON THE MARK(S) - OPTIMUM CURRENCY AREAS IN GERMANY

In the wake of unification, the former GDR became a member of the DM m onetary zone. We evaluate whether unified Germany satisfies the criter ia defining an optimal monetary area. We conclude that the primary cri terion, similarity of shocks, is not satisfied even by the western sta tes, a reflection of the importance of sector-specific relative to geo graphic shocks coupled with different sectoral structures. Extending t his argument, we conclude that the correlation of shocks to the easter n states with western states is also likely to be smalt. A case for mo netary unification must, in consequence, be based on political rather than narrowly economic calculations.