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Assessing the Effects of Financial Heterogeneity in a Monetary Union : A DSGE Approach

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  • Florina-Cristina Badarau

    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans, Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)

  • Grégory Levieuge

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

Abstract

The aim of this article is to analyze how financial heterogeneity can accentuate the cyclical divergences inside a monetary union that faces technological, monetary and financial shocks. To this purpose, this study relies on a two-country Dynamic Stochastic General Equilibrium model, where the two countries are supposed to be differently sensitive to the bank capital channel. The model allows us to demonstrate how a given symmetric shock causes cyclical divergences inside a heterogeneous monetary union. On this point, it allows reproducing some stylized facts recently observed in the UE. Moreover, it appears that the more heterogeneous the union, the larger the effects of financial asymmetries on the transmission of shocks. Finally, we show that a common monetary policy contributes to worsen cyclical divergences, in comparison with monetary policies that would be nationally conducted.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00641984.

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Date of creation: 21 Apr 2011
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Handle: RePEc:hal:wpaper:hal-00641984

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Keywords: Financial Heterogeneity; Bank Capital Channel; DSGE Model; Euro Area;

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  1. Peek, Joe & Rosengren, Eric S & Tootell, Geoffrey M B, 2003. " Identifying the Macroeconomic Effect of Loan Supply Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(6), pages 931-46, December.
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Cited by:
  1. Ibrahima Sangaré, 2014. "Chocs extérieurs et régimes monétaires en Asie du Sud-Est : une analyse DSGE," Working Papers hal-00949973, HAL.
  2. Florina-Cristina Badarau & Alexandra Popescu, 2012. "Monetary Policy and Credit Cycles: A DSGE Analysis," Working Papers halshs-00828074, HAL.

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