Living in EMU: Prices, interest rates and the adjustment of payments in a Monetary Union

Balance-of-payments problems for the EMU member countries will not vanish b y virtue of the use of a single currency. This article discusses two aspect s of the adjustment of payments in a monetary union that may have major rep ercussions for the EMU countries, for their policy-makers and for the Union 's institutional design. The first aspect concerns the role of national ban king systems in the adjustment process. The second is the role of changes i n general price levels, and hence in the terms of trade. The two aspects ar e interconnected, In addition to structural features that may hinder change s in interest rates and the terms of trade in the EMU, the presence of inst itutional commitments of member countries that may work perversely is consi dered.