We propose a model that represents the dynamic behaviour of a monetary union comprising two countries whose natural interest rates are initially unequal. This initial disparity and the subsequent application of a common monetary policy generate different national inflation rates and lead to...

We present a model of a currency area in which labor markets of country members are isolated but there is trade among these countries. When a country experiences a negative (resp. positive) shock, inflation goes down (up). This causes two effects. On the one hand the real interest rate of this...