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Monetary Policy and National Divergences in a Heterogeneous Monetary Union

Author

Listed:
  • Badarau-Semenescu, C.

    () (Université d’Orléans)

  • Gregoriadis, N.

    (Université d’Orléans)

Abstract

In spite of the structural heterogeneity of the Eurozone, the main objective of the European Central Bank (ECB) is to preserve price stability for the union as a whole, and she pays full attention to Union-wide inflation and output, neglecting national divergences. In this paper, we wonder, at a theoretical level, about the social loss associated with such a “centralized” objective, and we show the existence of an “optimal” contract for the common central bank, which ensures a correct stabilization of national magnitudes. Furthermore, we show that social welfare does not necessarily improve if the ECB worries about inflation divergences without being concerned about output divergences in the Union.

Suggested Citation

  • Badarau-Semenescu, C. & Gregoriadis, N., 2009. "Monetary Policy and National Divergences in a Heterogeneous Monetary Union," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 24, pages 408-434.
  • Handle: RePEc:ris:integr:0480
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    Cited by:

    1. Kayam, Saime S., 2011. "Influence of institutional factors and wage-setting mechanism in a dual labour market with currency union: Northern Cyprus," MPRA Paper 39154, University Library of Munich, Germany.
    2. Marcin Wolski, 2016. "Welfare-theoretic Optimal Policies in a New-Keynesian Economy with Heterogeneous Regions: Any Role for Financial Integration?," Journal of Common Market Studies, Wiley Blackwell, vol. 54(3), pages 742-761, May.

    More about this item

    Keywords

    monetary policy; monetary union; optimal contract; inflation divergences; output divergences;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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