* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Slide 20-* Copyright ? 2003 Pearson Education, Inc. The Theory of Optimum Currency Areas Figure 20-6: Deciding When to Peg the Exchange Rate Degree of economic integration between the joining country and the exchange rate area Gains and losses for the joining country LL GG Gains exceed losses Losses exceed gains ?1 1 Slide 20-* Copyright ? 2003 Pearson Education, Inc. The GG-LL framework can be used to examine how changes in a country’s economic environment affect its willingness to peg its currency to an outside currency area. Figure 20-7 illustrates an increase in the size and frequency of sudden shifts in the demand for the country’s exports. The Theory of Optimum Currency Areas Slide 20-* Copyright ? 2003 Pearson Education, Inc. The Theory of Optimum Currency Areas Figure 20-7: An Increase in Output Market Variability LL1 GG LL2 2 ?2 Degree of economic integration between the joining country and the exchange rate area Gains and losses for the joining country ?1 1 Slide 20-* Copyright ? 2003 Pearson Education, Inc. What Is an Optimum Cur
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