This paper studies the welfare impact of a common monetary policy in the context of a two-country, general equilibrium model with liquidity effect and nominal wage contracts, heterogeneous agents, imperfect competition in the labor market, trade in goods, immobility of labor and mobility of...

There are potential gains for most countries joining the planned EMU. It is argued that these gains are not primarily due to the creation of a currency area but, they depend on the high degree of political independence a European central bank can obtain. The transition path to the EMU with its...

We analyze the gain from coordinating on inflation between currency areas. To do so, we integrate a monetary search model into open-economy macro to construct a microfoundation for exchange rates. Each currency derives a value from alleviating the difficulties in trade. With a matching process...

In recent years the euro area has shown less resilience to the negative and largely OECD-wide common shocks than the English-speaking countries, but most of the smaller euro area countries have fared better than the large ones. This paper reviews policy issues that are important in fostering a...