This paper uses a DSGE model to study the potential benefits and costs of joining a monetary union. We show that the potential benefits arise from two sources. First, it reduces the magnitude of shocks by eliminating shocks to the nominal exchange rate, which have been found to be very...

Recent evidence by Bils and Klenow (2004) and Klenow and Kryvstov (2003) shows that the average price duration for US CPI-basket goods is in the order of one to two quarters, challenging the monetary business cycle research to try and explain how short price durations can nevertheless generate a...