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Heterogeneous "Credit Channels" and Optimal Monetary Policy in a Monetary Union

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  • Leonardo Gambacorta

    ()
    (Bank of Italy, Economic Research Department)

Abstract

The process of European monetary integration has prompted interest in the study of differences in financial systems and their consequences for monetary transmission mechanisms. This paper analyses the case of a monetary union composed of countries with heterogeneous "credit channels". In order better to insulate the economies from the asymmetric effects produced by differences in national financial systems, a money supply process based on the interest rate on bonds and its spread with respect to the bank lending rate is proposed. Using a two-country rational expectations model, this study highlights the properties of the optimal monetary instrument with respect to a wide range of stochastic disturbances.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 340.

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Date of creation: Oct 1998
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Handle: RePEc:bdi:wptemi:td_340_98

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Web page: http://www.bancaditalia.it
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Related research

Keywords: European Central Bank; asymmetry; bank lending channel; optimal monetary policy;

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Cited by:
  1. Christophe Hurlin & Rafal Kierzenkowski, 2002. "A Theoretical and Empirical Assessment of the Bank Lending Channel and Loan Market Disequilibrium in Poland," National Bank of Poland Working Papers 22, National Bank of Poland, Economic Institute.
  2. Stefano Siviero & Daniele Terlizzese & Ignazio Visco, 1999. "Are model-based inflation forecasts used in monetary policymaking? A case study," Temi di discussione (Economic working papers) 357, Bank of Italy, Economic Research and International Relations Area.
  3. Paola Dongili & Angelo Zago, 2005. "Bad loans and efficiency in Italian Banks," Working Papers 28, University of Verona, Department of Economics.
  4. Marco Mazzoli, 2001. "A simple enquiry on heterogeneous lending rates and lending behaviour," Heterogeneity and monetary policy 0105, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.

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