## Aftershocks of Monetary Unification: Hysteresis with a Financial Twist

_IMF Working Papers, March 13, 2017_

## Source details

**Canonical URL:** [Aftershocks of Monetary Unification: Hysteresis with a Financial Twist](https://www.imf.org/en/publications/wp/issues/2017/03/13/aftershocks-of-monetary-unification-hysteresis-with-a-financial-twist-44742)

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## Bibliographic details
- Authors: Tamim Bayoumi, Barry J. Eichengreen
- Published: March 13, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475586220.001

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### Summary and core findings
- Revisits 1990s conclusion that neither Europe nor the United States was an optimum currency area, noting the earlier finding that a regional core and periphery could be distinguished (Bayoumi and Eichengreen, 1993).
- Finds that the United States "is remains" closer to an optimum currency area than the Euro Area.
- Identifies "striking changes in correlations and responses" in the Euro Area interpreted as "hysteresis with a financial twist," where the financial system causes aggregate supply and demand shocks to reinforce each other.
- Uses canonical aggregate-demand–aggregate-supply terminology and textbook-style aggregate-supply–aggregate-demand frameworks in the analysis.

### Policy implications and recommendations
- Argues that the Euro Area needs "vigorous, coordinated regulation of its banking and financial systems by a single supervisor."
- States the policy conclusion succinctly: "monetary union without banking union will not work."

### Subjects and keywords (as listed)
- Subjects: Asset prices, Bank credit, Banking, Commercial banks, Economic integration, Economic theory, Financial institutions, Monetary unions, Money, Prices, Supply shocks
- Keywords: aggregate demand, aggregate demand shock, aggregate supply, aggregate supply supply curve, aggregate-demand demand shock, aggregate-demand response, Asset prices, Bank credit, canonical aggregate-demand-aggregate-supply model, Commercial banks, countries aggregate demand demand shock, demand disturbance, demand shock, Europe, European Monetary union, hysterisis, long-term aggregate-supply response, Monetary unions, Northern Europe, Optimum currency area, price, sloping aggregate demand curve, supply shock, Supply shocks, textbook aggregate-supply-aggregate-demand model, textbook-style aggregate-supply, WP

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## Content in this bundle

- **Aftershocks of Monetary Unification: Hysteresis with a Financial Twist, WP/17/55, March 2017**
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_Source: https://www.imf.org/en/publications/wp/issues/2017/03/13/aftershocks-of-monetary-unification-hysteresis-with-a-financial-twist-44742_