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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.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 3 ()
Pages: 1878-1889

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Handle: RePEc:ebl:ecbull:eb-11-00362
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