Write a research project discussing a topic on Is the US an Optimal Currency Area
The paper should follow the basic structure:
I. The paper should start with a short introduction/motivation section. Why should anyone care about your topic? Here talk about specifics, current events, politics, etc. (~1 pg). Be sure to establish a clear thesis (argument/focus) and lay out preliminary support you will reference throughout the next section.
- Use sources from reputable publications here (NY Times, Wall Street Journal, Economist, etc)
II. Next, you are expected to review the major contributions on the topic and the current state of the literature, citing at minimum five sources scholarly sources. This should be the bulk of your paper (~3-4 pgs). It is a literature review of your topic. If you have a specific topic (e.g. a specific trade deal, etc) then be sure to generalize your topic for this section. So if you were discussing NAFTA or Brexit, you would want to discuss recent literature on free trade agreements/areas for the literature review. Here you want to discuss general theories on your topic so that you can establish the necessary economic relationships.
- Use scholarly sources here (Journal Articles, Federal Reserve, IMF or NBER Studies, etc)
III. Extension. You just reviewed the literature on a specific subject. Here you should suggest an extension to the current literature (~.5 pgs). What is missing from the literature you reviewed (could be a new data set, case study, research methodology)?
IV. Conclusion. Wrap it up. Tie together the support presented above to call back to main thesis (~ .5 pg).
V. Reference Section that links to in-text citations. Use any citation format you choose (APA, MLA, etc), just be consistent throughout the paper. If you choose to, you can simply footnote within the text and forego this section.
Introduction
The United States is a large and diverse country, with economies that vary widely from region to region. This raises the question of whether the United States is an optimal currency area (OCA). An OCA is a geographic area in which a single currency would create the greatest economic benefit.
There are several criteria that economists use to determine whether a region is an OCA. These include:
- High labor mobility: Workers should be able to move freely between regions in order to equalize wages and prices.
- High trade integration: Regions should trade freely with each other, so that shocks in one region do not have a significant impact on other regions.
- Similar economic structures: Regions should have similar levels of economic development and similar industries. This will help to ensure that shocks in one region do not have a disproportionate impact on other regions.
- Fiscal transfers: Regions should be able to provide fiscal transfers to each other in order to help smooth out economic shocks.
Literature Review
There is a large body of literature on the question of whether the
United States is an OCA. Some economists argue that the United States meets all of the criteria for an OCA, while others argue that it does not.
Those who argue that the United States is an OCA point to the high levels of labor mobility and trade integration between regions. They also argue that the economies of the different regions are becoming increasingly similar. Additionally, the federal government provides fiscal transfers to different regions, which helps to smooth out economic shocks.
Those who argue that the United States is not an OCA point to the fact that the economies of the different regions are not perfectly equal. For example, the Southeast and Southwest are more agriculturally based, while the Northeast and Midwest are more industrially based. This means that shocks in one region may have a disproportionate impact on other regions. Additionally, the federal government's fiscal transfers are not always sufficient to offset the effects of economic shocks.
Extension
One area that could be explored in more detail is the impact of climate change on the optimal currency area status of the United States. As climate change progresses, the different regions of the United States are likely to be affected in different ways. For example, the Southeast is likely to be more affected by sea level rise, while the Southwest is likely to be more affected by drought. This could lead to increased economic disparities between regions, which could make it more difficult for the United States to function as an OCA.
Conclusion
The question of whether the United States is
an optimal currency area is a complex one. There is evidence to support both sides of the argument. Ultimately, the answer to this question will depend on how the economies of the different regions of the United States evolve in the future.
References
- The Optimum Currency Area: https://www.investopedia.com/terms/o/optimal-currency-area.asp
- Is the United States an Optimal Currency Area?: https://www.chicagofed.org/publications/chicago-fed-letter/1999/october-146
- The Economics of an Optimum Currency Area: https://www.nber.org/papers/h0124
- The Impact of Climate Change on the Optimal Currency Area: https://www.imf.org/external/pubs/ft/wp/2012/wp12110.pdf