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Monetary policy design and transmission asymmetry in EMU: does uncertainty matter?

de Grauwe, Paul and Senegas, Marc-Alexandre (2006) Monetary policy design and transmission asymmetry in EMU: does uncertainty matter? European Journal of Political Economy, 22 (4). pp. 787-808. ISSN 0176-2680

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Identification Number: 10.1016/j.ejpoleco.2005.11.005

Abstract

In this paper, we consider how uncertainty affects the choice between federal monetary policy based on national and union-wide aggregate data under conditions of asymmetry in the transmission of monetary policy. We find that the uncertainty about the transmission process sustains (and, in some cases, even reinforces) the need to take into account information about national economies in the formulation of monetary policy. Also the forecasting process matters when uncertainty is additive: in particular, when union-wide forecasting is more accurate than national-based forecasting, this advantage can compensate for the welfare loss from using union-wide aggregation. There is, however, a strong case for using national information in the optimal design of common monetary policy.

Item Type: Article
Official URL: http://www.journals.elsevier.com/european-journal-...
Additional Information: © 2006 Elsevier
Subjects: H Social Sciences > HG Finance
J Political Science > JZ International relations
JEL classification: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
Sets: Departments > European Institute
Collections > Economists Online
Date Deposited: 05 Oct 2012 11:23
Last Modified: 05 Oct 2012 11:23
URI: http://eprints.lse.ac.uk/id/eprint/46588

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