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


  • Christian R. Proaño

    () (The New School for Social Research)


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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    Monetary Policy; Labor Market Rigidities; Monetary Unions;

    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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