In a word, this paper demonstrated the influence of real and nominal economic
integration processes between two countries on their exchange rate. Theoretically,
the monetary approach connects the fundamental variables money,
income, interest rate and inflation to the value of the currency. In case of crosscountry
convergence of these determinants, marked by stationary international
differentials, exchange rate stationarity comes as a logical consequence.
Therefore, this can be interpreted as an indicator for full economic integration
in real, nominal and policy terms. Its straightforwardness makes such a criterion
a convenient tool for preliminary empirical checks in convergence-related
macro investigations.
An interesting implication refers to the theory of optimal currency areas
(OCA) formed by different countries: In case of symmetric behaviour of
the most important macroeconomic variables, maintaining an autonomous
monetary policy exclusively orientated towards domestic needs loses its necessity.
By the same token, the importance of absorbing country-specific shocks