According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal...

This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified...