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Monetary policies in the presence of asymmetries

de Grauwe, Paul (2000) Monetary policies in the presence of asymmetries. Journal of Common Market Studies, 38 (4). pp. 593-612. ISSN 0021-9886

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Identification Number: 10.1111/1468-5965.00255

Abstract

In this article we study the theory of monetary policy when the monetary authority faces asymmetries in the countries constituting the monetary union. We identify two asymmetries (shocks and transmission) in the context of a two-country model. A general finding is that, as the degree of asymmetries increases, the effectiveness of stabilization of output and unemployment is reduced. As a result, when asymmetries increase, the stabilization effort of the central bank declines for given preferences about stabilization. We also find that the central bank can improve the efficiency of its monetary policies when asymmetries in the transmission exist, by using national information in the setting of optimal policies. The declared strategy of the ECB conflicts with this prescription. However, in practice the ECB is likely to follow this prescription.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/%28...
Additional Information: © 2000 Blackwell Publishing
Divisions: European Institute
Subjects: H Social Sciences > HB Economic Theory
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)
Date Deposited: 04 Oct 2012 15:32
Last Modified: 21 Mar 2024 19:15
URI: http://eprints.lse.ac.uk/id/eprint/46553

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