The debate about a European Monetary Union (EMU) revolves mainly about two issues: the costs of the loss of a national policy instrument, in the form of stabilization and revenues of seigniorage, and the gains from policy coordination. We argue that the costs of giving up national seigniorage...

We analyze a two-country zone facing a joint inflationary shock and responding with coordinated and uncoordinated monetary and fiscal policies. We show that the standard presumption that the absence of coordination results in an excessive exchange rate appreciation of the zone with respect to...