IS EMU MORE JUSTIFIABLE EX-POST THAN EX ANTE

Yes. A country's suitability for EMU entry depends on the intensity of trade with EMU members, and the extent to which its business cycles a re correlated with those of other members. But both international trad e patterns and international business cycle correlations are endogenou s. Theoretically, economic integration has an ambiguous effect on the degree to which business cycles are correlated across countries. Empir ically though, countries with closer trade links tend to have more tig htly correlated business cycles. It follows that countries are more li kely to satisfy the criteria for entry into a currency union after tak ing steps toward economic integration than before. (C) 1997 Elsevier S cience B.V.