The chapter promises in its title (new) empirical evidence on the costs of EMU. My comments will be directed at this claim. I should emphasize at the outset that I symphasize with the agenda of the authors and that I agree with them that the existing evidence on the costs of EMU is rather weak. So this contribution is certainly a step in the right direction, but I would have liked to see more movement. Why is the existing evidence on the correlation of shocks unsatisfactory? Not only for the reason explained by the authors – with which I agree – but also because of another fundamental problem: the existing empirical literature on the costs of EMU mostly just measures correlations and variances of shocks to certain macro-variables such as output or the exchange rate. It assumes implicitly that any shocks would be a valid reason to adjust the exchange rate. But this is not the case!

The usual story, first told by Mundell, is quite simple: there is a shock to (an unexpected fall in) the demand for the goods exported by the country under consideration. This shock requires a change in the real exchange rate to preserve internal and external balance. If the nominal exchange rate cannot move, the adjustment has to come from wages and prices, but this will be too slow; hence there will be unemployment.