This paper studies monetary regime choice between monetary union and flexible exchange rate regime in a large open economy framework. The classical approach emphasizes that monetary unions are inherently costly because a single interest rate cannot respond effectively to different shocks of...

We analyze different behavioral models of expectation formation in a multicountry New Keynesian currency union model. Our analyses yield the following robust results. First, economic integration is of crucial importance for the stability of the economic dynamics in a currency union. Second, when...