Is EMU more justifiable ex post than ex ante?

Abstract

Yes. A country's suitability for EMU entry depends on the intensity of trade with EMU members, and the extent to which its business cycles are correlated with those of other members. But both international trade patterns and international business cycle correlations are endogenous. Theoretically, economic integration has an ambiguous effect on the degree to which business cycles are correlated across countries. Empirically though, countries with closer trade links tend to have more tightly correlated business cycles. It follows that countries are more likely to satisfy the criteria for entry into a currency union after taking steps toward economic integration than before.