Should Denmark Join the Euro?

Assignment 3 – Joining the Euro

Analysis on Denmark

Assignment 3 – Joining the Euro

Analysis on Denmark

Hilde Janssen 100296233

Heleen Janssen 100296622

Lisa Hünermann 100296293

Hilde Janssen 100296233

Heleen Janssen 100296622

Lisa Hünermann 100296293

Table of Content

Introduction 3

Theoretical Framework and Background Literature 4

The Optimum Currency Area-theory: an introduction 4

OCA Criteria 4

Danish preferences 5

Main Findings and Interpretation 7

Does Denmark meet the OCA criteria? 7

Trade Integration 7

Economic Structure 8

Herfindahl Index of Concentration by Industry 8

Krugman Index of Specialization 10

Cycle Synchronicity 10

Labor mobility 11

Immigration by sex, age group and country of previous residence 12

Emigration by sex, age group and country of next usual residence 13

Denmark’s degree of nominal convergence: 14

Inflation 14

Interest Rates 15

Exchange Rate 17

Conclusions 19

Introduction

In this assignment the focus will be on Denmark. The main aim of this report is answering the following question: Should Denmark give up its national currency, the Danish krone, adopt the Euro and enter the EMU?

In order to determine a satisfying answer to this question, the focus has been on several subjects. First of all, the bilateral trade between Denmark and the Euro zone is rather high. Especially a high share of Denmark’s imports come from the Euro area. Next, after evaluating the Herfindahl index of concentration it is clear that the economic structure of Denmark, France and Germany are quite similar. This, again, indicates that it would be beneficial for Denmark to enter the EMU. The Krugman index shows the same tendency: also in respect of specialization it is clear that Denmark, France and Germany are rather similar to each other. Also in terms of cycle synchronicity, Denmark is behaving rather similar to the countries in the Euro zone. This shows that an adoption of the euro in Denmark...