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Monetary Policy in a Monetary Union: What Role for Regional Information?

  • Paolo Angelini

    (Economic Outlook and Monetary Policy Department, Bank of Italy)

  • Paolo Del Giovane

    (Economic Outlook and Monetary Policy Department, Bank of Italy)

  • Stefano Siviero

    (Economic Outlook and Monetary Policy Department, Bank of Italy)

  • Daniele Terlizzese

    (Einaudi Institute for Economics and Finance, and Bank of Italy)

Can the central bank of a monetary union, whose objectives are exclusively defined in terms of union-wide variables, improve its performance by reacting to regional variables rather than to union-wide variables only? Our answer is not clear-cut. We find the improvement to be large when we use a backward-looking model of the economy and negligible when we use a hybrid model. The main determinant of this finding seems to be the different degree of inertia (or its opposite, the forward-lookingness) characterizing the two models, rather than other model features.

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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 4 (2008)
Issue (Month): 3 (September)
Pages: 1-28

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Handle: RePEc:ijc:ijcjou:y:2008:q:3:a:1
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