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Should monetary policy take account of national labor market asymmetries in a currency union?

Author

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  • Christian R. Proaño

    (The New School for Social Research)

Abstract

This paper investigates the design of optimal monetary policy in a currency union with asymmetric national labor markets. For this purpose a stylized theoretical two-country model is introduced where the occurrence of inflation differentials is a reflection of asymmetries in the labor market flexibility between the two countries. Through numerical simulations it is shown that a larger weight of the country with the more sclerotic labor market in the loss function of the monetary union's central bank is more advantageous at the monetary union's level than a simple weighting scheme based on the relative economic size of both countries.

Suggested Citation

  • Christian R. Proaño, 2012. "Should monetary policy take account of national labor market asymmetries in a currency union?," Economics Bulletin, AccessEcon, vol. 32(3), pages 1878-1889.
    • Handle: RePEc:ebl:ecbull:eb-11-00362
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P182.pdf
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    Cited by:

    1. Proaño, Christian R. & Lojak, Benjamin, 2015. "Debt stabilization and macroeconomic volatility in monetary unions under heterogeneous sovereign risk perceptions," BERG Working Paper Series 106, Bamberg University, Bamberg Economic Research Group.

    More about this item

    Keywords

    Monetary Policy; Labor Market Rigidities; Monetary Unions;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E0 - Macroeconomics and Monetary Economics - - General

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