The paper studies the design of optimal fiscal rules for members of a monetary union when there are privately observed shocks to countries' social cost of domestic taxation. First, I show that optimal fiscal rules prescribe policy coordination in the sense of domestic taxation efforts that are...

We analyze the gain from coordinating on inflation between currency areas. To do so, we integrate a monetary search model into open-economy macro to construct a microfoundation for exchange rates. Each currency derives a value from alleviating the difficulties in trade. With a matching process...