OCA Indexes and Convergence Process in Europe

• Main Authors: Frydrych Jakub, Burian Stanislav
• Format: Article
• Language: English
• Published: Editura Universităţii „Alexandru Ioan Cuza” din Iaşi / Alexandru Ioan Cuza University of Iasi Publishing house 2017-06-01
• Series: Scientific Annals of Economics and Business
• Subjects: EMU; OCA index; convergence; monetary policy; optimum currency area
• Online Access: http://www.degruyter.com/view/j/saeb.2017.64.issue-2/saeb-2017-0012/saeb-2017-0012.xml?format=INT

This paper evaluates the European monetary convergence for period 2001 and 2013. The main purpose of this contribution is the estimation of the so-called OCA index, which indicates the proximity of two economic areas. The paper is theoretically based mainly on the research of Bayoumi and Eichengreen (1997), and Horváth and Komárek (2003). Selection and calculation of variables precedes the econometric analysis, and those variables correspond to the basic characteristics of an optimum currency area. Although the estimated model fulfills the conditions of economic and econometric verifications, its explanatory capabilities are significantly reduced due to the limited set of input data. Results of the analysis point to relatively stable values of indices in the period, but their further examination of the development in time reveals a steady deterioration in the case of almost all economies. That means that the convergence process was not proven because a decrease in OCA indexes values over the time was not observed. According to the results of comparison, methodological approach of the OCA indexes cannot be considered reliable because minor differences in calculation give different outputs.