We study the effects of labor mobility within a currency union suffering from nominal rigidities. When the demand shortfall in depressed region is mostly internal, migration may not help regional macroeconomic adjustment. When external demand is also at the root of the problem, migration out of depressed regions may produce a posi- tive spillover for stayers. We consider a planning problem and compare its solution to the equilibrium. We find that the equilibrium is generally constrained inefficient, although the welfare losses may be small if the economy suffers mainly from internal demand imbalances.
Mundell (1961) is famously cited for his exaltation of labor mobility as a precondition for optimal currency areas. This idea, which quickly settled as a cornerstone of the growing Optimal Currency Area (OCA) literature, seems broadly consistent with the preciously few experiences we have to date.1 The United States enjoys relatively high mobility and has proven to be a successful currency union. Mobility is arguably much lower within the Eurozone, which sunk into trouble scarcely ten years after its inauguration.
We study the effects of labor mobility within a currency union suffering from nominal rigidities. When the demand shortfall in depressed region is mostly internal, migration may not help regional macroeconomic adjustment. When external demand is also at the root of the problem, migration out of depressed regions may produce a posi- tive spillover for stayers. We consider a planning problem and compare its solution to the equilibrium. We find that the equilibrium is generally constrained inefficient, although the welfare losses may be small if the economy suffers mainly from internal demand imbalances.Mundell (1961) is famously cited for his exaltation of labor mobility as a precondition for optimal currency areas. This idea, which quickly settled as a cornerstone of the growing Optimal Currency Area (OCA) literature, seems broadly consistent with the preciously few experiences we have to date.1 The United States enjoys relatively high mobility and has proven to be a successful currency union. Mobility is arguably much lower within the Eurozone, which sunk into trouble scarcely ten years after its inauguration.
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