In this paper we analyze the nature of the shocks hitting the EMU member countries over the period 1991-2004, as well as for the two subperiods before and after 1999, i.e., the start of EMU. To this end, we first evaluate the relative importance of symmetric vs. asymmetric shocks, and then...

The authors analyze the nature of economic shocks hitting European Economic and Monetary Union (EMU) member countries from 1991 to 2004, as well as for two sub-periods before and after the launch of EMU. To this end, they first evaluate the relative importance of symmetric versus asymmetric...

Membership in a monetary union implies stronger incentives for nominal wage flexibility in the form of wage indexation and shorter contract length than nonmembership. For example, entry into a monetary union may cause a move from a non-indexation to an indexation equilibrium. But more wage...

The paper addresses the question what effects the enlargement of a monetary union will have on necessary structural reforms in the (low distortion) member countries and the (high distortion) candidate countries. While monetary union lowers reforms in the candidate countries, members of the...

It is widely debated whether a monetary union has to be accompanied by a fiscal transfer scheme to accommodate asymmetric shocks. We build a model of a monetary union with a central bank and two heterogeneous countries that are linked by a fiscal transfer scheme with repercussions on monetary...

It is widely debated whether a monetary union has to be accompanied by a fiscal transfer scheme to accommodate asymmetric shocks. We build a model of a monetary union with a central bank and two heterogeneous countries that are linked by a fiscal transfer scheme with repercussions on monetary...

It is widely debated whether a monetary union has to be accompanied by a fiscal transfer scheme to accommodate asymmetric shocks. We build a model of a monetary union with a central bank and two heterogeneous countries that are linked by a fiscal transfer scheme with repercussions on monetary...

Several countries face the choice between targeting inflation independently or entering a monetary union that targets inflation. The present paper extends the theory of optimum currency areas to deal with this choice. In contrast to the conventional theory, countries are shown to form more of an...

The paper demonstrates that policy makers have a precautionary motive to undertake more labour-market reform - and hence attain lower equilibrium unemployment - inside a monetary union than outside. The reason is a desire to reduce the utility cost of variations in employment when asymmetric...

The paper analyses various mechanism through which monetary union in Europe may affect unemployment. The focus is on the political incentives for labour-market reform. There will be more reform outside than inside the EMU to the extent that a national inflation bias can be reduced. But if there...