Optimum Currency Areas within the US and Canada a Data Analysis Approach

Over the last few decades Robert Mundell’s theory (1963) of Optimum Currency Areas (OCA) has attracted significant attention between researchers and policy makers especially after the formation of the European Monetary Union and the debate over whether the eurozone countries actually consist an OCA. In this paper, we take this debate to the area that was originally the subject of Mundell’s motivation: the US and Canada. We employ the methodology of Correspondence Analysis and Hierarchical Cluster Analysis, in a sample of macroeconomic data from the fifty US states and ten Canadian provinces for 2009 in an effort to investigate whether the current currency split between north (Canada) and south (the US) is an OCA or possibly another split may be more appropriate. Our results show that three OCAs are identified within US states and Canadian provinces: one that includes regions of eastern US and Canada, one that includes regions of central-eastern and eastern US and Canada and finally one with regions of western US and Canada.