Optimum‐Currency‐Area Paradoxes

Abstract

Abstract Contributions by Mundell (1961 ), McKinnon (1963 ), and Kenen (1969 ) laid the foundations for all subsequent work in the area of the theory of optimum currency areas. The development of the optimum‐currency‐area paradigm, however, has not been a smooth one. After a rise in research activity during the 1960s, the paradigm fell from favor in the 1970s and 1980s, before it re‐emerged as an active area of research. This paper argues that the decline of the theory as an active area of research partly reflects paradoxes among the contributions of Mundell, McKinnon, and Kenen. Correspondingly, the renewed interest in the theory is due, in part, to a reconciliation of those paradoxes, reflecting both developments in academic thought and the evolution of the international monetary system.

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