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In case of an asymmetric demand shock, which \"tool\" cannot be used ANYMORE by countries that...

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Finance

In case of an asymmetric demand shock, which \"tool\" cannot beused ANYMORE by countries that have joined a monetary union?

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In the absence of nominal exchange rate flexibility viseversa the other countries participating in a monetary union adjustment has to occur via other channels Many years ago Mundell argued that if a group of countries wanted to adopt a common currency the shocks that they were exposed to had better be similar If that were not the case they would need to have strong alternative adjustment mechanisms Mundell and others identified key conditions for such alternative adjustment mechanisms price flexibility factor mobility and fiscal transfers Price flexibility is important in order to let countries affected by    See Answer
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