Publication

This paper takes a first step in analyzing how a monetary union performs in the presence of labor market asymmetries. Differences in wage flexibility, market power and country sizes are allowed for in a setting with both country-specific and aggregate shocks. It is shown that asymmetries can have important effects and that there are substantial spill-over effects. While the authors argue that some of their results may be desirable for the monetary union as a whole, they point out that there is a risk of a 'reform deficit' in an asymmetric monetary union.