Obstfeld, M., and K. Rogoff. 2002. “Global Implications of Self-Oriented National Monetary Rules.” The Quarterly Journal of Economics 117 (2) (May 1): 503–535. doi:10.1162/003355302753650319.
It is well-known that if international linkages are relatively small, the potential gains to international monetary policy coordination are typically quite limited. But when goods and financial markets are tightly linked, is it problematic if countries unilaterally design their monetary policy rules? Are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination? We argue that under plausible assumptions the answer is no. Unless risk aversion is very high, lack of coordination in rule setting is a second-order problem compared with the overall gains from macroeconomic stabilization.