The article examines the welfare implications of the USA and the Euro area joining a currency union as opposed to operating in a flexible exchange rate regime. The condition for the USA and Euro area to create a monetary union is derived from the Barro–Gorden model and the theoretical model of currency union proposed by A. Dixit that is a direct generalization of Barro–Gordon model. This condition is estimated on the USA and Euro area macroeconomic data from 1980 to 2004.
Welfare Implications of the Design of a Currency Union in Case of Member Countries of Different Sizes and Output Persistence