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Monetary policy and the U.S. and regions: some implications for European Monetary Union

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  • Gerald A. Carlino
  • Robert DeFina

Abstract

Under the European Monetary Union (EMU), member countries will be subject to common monetary policy shocks. Given the diversity in the economic and financial structures across the EMU economies, these common monetary shocks can be reasonably expected to have different effects. Little is known about what differences might arise, however, given the absence of any historical experience in Europe with a common currency. ; An alternative approach is to draw upon the historical experience of monetary policy's impacts on sub-national regions in the United States. Like the countries of the EMU, U.S. states and regions differ in industry mix and financial composition, while at the same time, they employ a common currency. Thus, the lessons learned from the U.S. experience provide valuable information about the potentially varied effects of a common monetary policy across EMU economies. ; In this paper, the authors use earlier findings to construct an index that ranks EMU countries by their likely sensitivity to a common monetary shock. The index indicates that countries fall into one of three groups: Finland, Ireland, and Spain are likely to be most responsive to monetary policy shocks; France, Italy, and the Netherlands will have a relatively small response; and Austria, Belgium, Portugal, Germany, and Luxembourg are likely to have a response close to the EMU average.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 98-17.

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Date of creation: 1998
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Handle: RePEc:fip:fedpwp:98-17

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Keywords: Monetary unions - European Union countries ; Monetary policy;

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References

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Citations

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Cited by:
  1. Gerald A. Carlino & Robert H. DeFina, 1999. "Do states respond differently to changes in monetary policy?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 17-27.
  2. Casella, A., 2000. "Games for Central Bankers, Markets v/s Politics in Public Policy Decisions," G.R.E.Q.A.M. 00a02, Universite Aix-Marseille III.
  3. Ivo J.M. Arnold & Casper G. de Vries, 1999. "Endogenous Financial Structure and the Transmission of ECB Policy," Tinbergen Institute Discussion Papers 99-021/2, Tinbergen Institute.
  4. Hallet, Martin, 1999. "The Impact of EMU on cohesion - further research needed?," ERSA conference papers ersa99pa087, European Regional Science Association.
  5. Di Giacinto, Valter, 2002. "Differential regional effects of monetary policy: a geographical SVAR approach," ERSA conference papers ersa02p257, European Regional Science Association.
  6. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Vanderbilt University Department of Economics Working Papers 0128, Vanderbilt University Department of Economics.
  7. Fabio Bagliano & Alessandro Sembenelli, 2004. "The cyclical behaviour of inventories: European cross-country evidence from the early 1990s recession," Applied Economics, Taylor & Francis Journals, vol. 36(18), pages 2031-2044.
  8. Ramos, Raul & Clar, Miquel & Surinach, Jordi, 1999. "EMU: some unanswered questions," ERSA conference papers ersa99pa220, European Regional Science Association.
  9. Andrew Hughes Hallett & Laura Piscitelli, 2002. "Does One Size Fit All? A currency union with asymmetric transmissions and a stability pact," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 71-96.
  10. Carlos Rodriguez-Fuentes & Sheila Dow, 2003. "EMU and the Regional Impact of Monetary Policy," Regional Studies, Taylor & Francis Journals, vol. 37(9), pages 969-980.
  11. Andrew Hughes Hallett & Christian Richter, 2009. "Has there been any structural convergence in the transmission of European monetary policies?," International Economics and Economic Policy, Springer, vol. 6(2), pages 85-101, July.
  12. K. Raabe & I. Arnold & C.J.M. Kool, 2006. "Firm size and monetary policy transmission : a theoretical model on the role of capital investment expenditures," Working Papers 06-14, Utrecht School of Economics.
  13. Hughes Hallett, Andrew & Piscitelli, Laura, 1999. "EMU in Reality: The Effect of a Common Monetary Policy on Economies with Different Transmission Mechanisms," CEPR Discussion Papers 2068, C.E.P.R. Discussion Papers.
  14. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1833, Econometric Society.
  15. Claudia M. Buch, 2000. "Financial Market Integration in the US: Lessons for Europe?," Kiel Working Papers 1004, Kiel Institute for the World Economy.
  16. I. Arnold & C.J.M. Kool & K. Raabe, 2005. "The determinants of the industry effects of US monetary policy," Working Papers 05-11, Utrecht School of Economics.
  17. Claudia M. Buch, 2001. "Financial Market Integration in a Monetary Union," Kiel Working Papers 1062, Kiel Institute for the World Economy.
  18. Gogas, Periklis & Kothroulas, George, 2009. "Two speed Europe and business cycle synchronization in the European Union: The effect of the common currency," MPRA Paper 13909, University Library of Munich, Germany.
  19. Andreas Worms, 2003. "Interbank Relationships and the Credit Channel in Germany," Empirica, Springer, vol. 30(2), pages 179-198, June.

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