This paper presents an empirical assessment of the endogenous optimum currency area theory. <link rid="b20">Frankel and Rose (1998</link>) study the endogeneity of a currency union through the lens of international trade flows. Our study extends Frankel and Rose's model by using FDI flows to test the original theory...

This paper investigates the ability of the Stability and Growth Pact to prevent governments in the "euro zone" from running excessive budget deficits. It is shown that in a static two-country game, the Pareto-optimal strategy of no excess deficits cannot be systematically enforced, whatever the...