The main object of this paper is to consider the size effects of monetary union (MU) within a standard open economy macroeconomic model that emphasizes the short-run price rigidities and imperfect competition.

Methodologies:

To examine the size effects of MU, I employ a stylized model of international macroeconomics for large countries with imperfect competition and nominal rigidities.  I try to derive the closed-form solutions that are expressed as functions of the terms of trade (ToT).  The ToT is determined by the interaction of the large countries (MU and Home) within the model.

Results:

It will be demonstrated that, whilst both MU and Home country gain from a larger MU (by new accession countries), the gain is larger for MU because of the change in ToT by the size effect. We also analyze the effects of (1) changes in productivity and (2) the market power of workers in MU on the welfare levels of both MU and Home country, and explain that both "ins" and "outs" of MU will gain with plausible values of the underlying parameters.