Publisher's Synopsis
This publication is part of a set of 18 documents which have been prepared by the Treasury to inform the assessment of the Government's five economic tests for Economic and Monetary Union (EMU) entry into the euro area. In relation to the first test, this study presents a literature review regarding convergence tests based on business cycle and shock correlations, updating some previous work. Aspects considered include: what is meant by convergence, and the role of business cycle measurement and the identification of shocks in this context; UK convergence with the euro area, the EU and some of the principal member states; "UK idiosyncrasy", which involves comparisons between the UK experience compared to Europe and the United States; and the optimal currency area (OCA) theory.
