Dilemma of One Common Central Bank in a Heterogeneous Monetary Union
AbstractThe paper studies the appropriate weight that the central bank of a heterogeneous monetary union should give to each specific country. To stabilize symmetric shocks, the central bank should give a bigger weight to the countries where the rigidity in the labor market and the sensibility of the demand to the interest rate are the highest, whereas equally weighting each country is justified for asymmetric shocks. Moreover, the central bank should overweight the country which has a smaller preference for sustaining the economic activity and a higher preference for stabilizing public expenditures.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 23 (2008)
Issue (Month): ()
monetary policy; monetary union; structural heterogeneity; heterogeneity in preferences;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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