Is the Eurozone an Optimal Currency Area? An investigation from a financial market´s perspective

Sammanfattning: The purpose of this study is to examine if the Eurozone is an Optimal Currency Area (OCA) or not. To do this we have examined if the European Central Banks monetary policy announcements have a significant impact on the equity markets and on the 10-year government bond yields in the Eurozone. We examine this by looking at eleven different countries in the Eurozone. These are: Germany, France, Belgium, Austria, Finland, The Netherlands, Italy, Spain, Greece, Portugal and Ireland. The study spans from the 28th of December 2010 until 25th of October 2019. During this time the ECB has made 86 announcements but on only ten of these occasions have they announced that there will be a change in the deposit facility rate. From this, we can conclude that there have been no significant price-reactions to the announcements, regardless if the interest rates have stayed the same, been increased, or decreased. From this we connected the results to the theories of Optimal Currency Areas (OCA) and the Efficient Market Hypothesis (EMH). We concluded that the Eurozone is an Optimal Currency Area since these securities all showed similar reactions to the monetary policy announcements and that the insignificant results is credited to a high efficiency on the equity and government bond markets in the Eurozone.