A baseline micro model leading to employment hysteresis due to hiring- and firing- costs is proposed. A band of inaction accounting for a "weaker" relationship between employment and its determinants is widened by option value effects of exchange rate uncertainty. Based on this micro foundation...

According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal...