Asymmetric shocks and monetary policy in a currency union

We analyze the conduct of monetary policy in a currency union in the face o f asymmetric shocks. In particular, we compare the stabilization properties of a currency union versus alternative exchange rate arrangements. The rel ative performance of a currency union is shown to depend on the extent of e conomic integration in patterns of consumption and production and on the re lative weights placed on price stability versus employment stability in the monetary authority's objective function.