The European Monetary Union: An Agnostic Evaluation

Abstract

The debate about a European Monetary Union (EMU) revolves mainly about two issues: the costs of the loss of a national policy instrument, in the form of stabilization and revenues of seigniorage, and the gains from policy coordination. We argue that the costs of giving up national seigniorage are small, but that, on the other hand, policy coordination is not optimally achieved through monetary integration, owing to trade balance externalities. Yet, the EMU should not be compared with an infeasible first-best scheme, but with its alternative, the EM.

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