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Heterogeneous "Credit Channels" and Optimal Monetary Policy in a Monetary Union

Author

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  • Leonardo Gambacorta

    () (Bank of Italy, Economic Research Department)

Abstract

The process of European monetary integration has prompted interest in the study of differences in financial systems and their consequences for monetary transmission mechanisms. This paper analyses the case of a monetary union composed of countries with heterogeneous "credit channels". In order better to insulate the economies from the asymmetric effects produced by differences in national financial systems, a money supply process based on the interest rate on bonds and its spread with respect to the bank lending rate is proposed. Using a two-country rational expectations model, this study highlights the properties of the optimal monetary instrument with respect to a wide range of stochastic disturbances.

Suggested Citation

  • Leonardo Gambacorta, 1998. "Heterogeneous "Credit Channels" and Optimal Monetary Policy in a Monetary Union," Temi di discussione (Economic working papers) 340, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_340_98
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/1998/1998-0340/tema_340_98.pdf
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    Cited by:

    1. Christophe Hurlin & Rafal Kierzenkowski, 2002. "A Theoretical and Empirical Assessment of the Bank Lending Channel and Loan Market Disequilibrium in Poland," NBP Working Papers 22, Narodowy Bank Polski, Economic Research Department.
    2. Stefano Siviero & Daniele Terlizzese & Ignazio Visco, 1999. "Are model-based inflation forecasts used in monetary policymaking? A case study," Temi di discussione (Economic working papers) 357, Bank of Italy, Economic Research and International Relations Area.
    3. Marco Mazzoli, 2001. "A simple enquiry on heterogeneous lending rates and lending behaviour," Heterogeneity and monetary policy 0105, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.

    More about this item

    Keywords

    European Central Bank; asymmetry; bank lending channel; optimal monetary policy;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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