EVER CLOSER TO HEAVEN - AN OPTIMUM-CURRENCY-AREA INDEX FOR EUROPEAN COUNTRIES

We develop a procedure for applying the core implications of the theor y of optimum currency areas, and find that the relationship between OC A characteristics and the observed behavior of exchange rates seems su fficiently to support simple forecasting. Accordingly, we operationali ze the theory by constructing an OCA index for European countries. The results coincide with popular handicapping of the Maastricht stakes w ith one notable excpetion: France, A further finding is the symbiotic relationship between economic integration and monetary integration. (C ) 1997 Elsevier Science B.V.