This paper considers the positive theory of monetary integration in a general equilibrium monetary model. A role for money finance is presented which optimally reduces consumption variability when asset markets are incomplete. Importantly, this role is independent of the aggregate money stock...

We propose a method, based on the currency union model of Gali and Monacelli (2008), to determine whether a region belongs to an existing optimal currency area. The method involves assessing the predictability of regional inflation rates at medium term horizons. We apply the methods to the...