4 ms·

> As part of the euro zone, Finland was also unable to devalue its currency to stimulate spending. I see this a lot with respect to poorer eurozone countries l

by zeveb 9y ago

> As part of the euro zone, Finland was also unable to devalue its currency to stimulate spending. I see this a lot with respect to poorer eurozone countries like Greece. I wonder if it's part of the reason why some U.S. states like West Virginia are (apparently permanently) poor. Would the U.S. economy be more dynamic and productive if each state had its own dollar?

tpeo 9y ago
It could be. The part of economics which deals with this stuff is the Optimum Currency Area Theory. Basically, if different regions respond differently to shocks, they might prefer to have different currencies. And apparently someone posted a link on Wikipedia to an article from the Chicago Fed that suggests that there are different response areas in the United States. Link : http://www.chicagofed.org/digital_assets/publications/working_papers/2001/Wp2001-22.pdf http://www.chicagofed.org/digital_assets/publications/workin...
Wildgoose 9y ago
Quite possibly. The idea is that there is an Optimum Currency Area, i.e. a region over which a single currency makes sense. Larger countries (including the UK) are not necessarily Optimum Currency Areas but can mask the effects by using fiscal transfers between richer areas (or states) and poorer areas (or states). Some smaller countries do better sharing a currency even without the fiscal transfers, (such as Switzerland and Luxembourg I believe). The Euro is a classic example of far too large an area, encompassing widely disparate economies, and without sufficient balancing fiscal transfers - hence the considered opinion of many people that the Euro as it is currently constituted is not viable over a longer time period. To survive, the Euro requires one of: (a) Strong Political Union and Fiscal Transfers (b) The Departure of Weaker Economies (such as Greece) (c) Breakup, into for example a "Northern" Euro and a "Southern" Euro https://en.wikipedia.org/wiki/Optimum_currency_area https://en.wikipedia.org/wiki/Optimum_currency_area

by zeveb 9y ago

tpeo 9y ago

It could be. The part of economics which deals with this stuff is the Optimum Currency Area Theory. Basically, if different regions respond differently to shocks, they might prefer to have different currencies. And apparently someone posted a link on Wikipedia to an article from the Chicago Fed that suggests that there are different response areas in the United States. Link : http://www.chicagofed.org/digital_assets/publications/working_papers/2001/Wp2001-22.pdf http://www.chicagofed.org/digital_assets/publications/workin...

Wildgoose 9y ago

Quite possibly. The idea is that there is an Optimum Currency Area, i.e. a region over which a single currency makes sense. Larger countries (including the UK) are not necessarily Optimum Currency Areas but can mask the effects by using fiscal transfers between richer areas (or states) and poorer areas (or states). Some smaller countries do better sharing a currency even without the fiscal transfers, (such as Switzerland and Luxembourg I believe). The Euro is a classic example of far too large an area, encompassing widely disparate economies, and without sufficient balancing fiscal transfers - hence the considered opinion of many people that the Euro as it is currently constituted is not viable over a longer time period. To survive, the Euro requires one of: (a) Strong Political Union and Fiscal Transfers (b) The Departure of Weaker Economies (such as Greece) (c) Breakup, into for example a "Northern" Euro and a "Southern" Euro https://en.wikipedia.org/wiki/Optimum_currency_area https://en.wikipedia.org/wiki/Optimum_currency_area