THE CURRENT IMPASSE IN RESEARCH ON OPTIMUM CURRENCY AREAS

The only visible advance in the theory of the optimum currency area (O CA) since Mundell wrote in 1961 is the proposal of new criteria for de termining the optimal size of a currency area. The paper first tries t o substantiate this general assessment and then argues that the fault lies in the profession's unwillingness to adopt a formal analysis of t he subject divorced from the policy aspects. We could make considerabl e progress in analysing the OCA by merely following our usual procedur e of defining a general welfare function to be compared, if not maximi sed, under different, well-specified conditions. Furthermore, any move in this direction would take us far beyond the current enumeration of criteria for an OCA.