Asymmetries in Monetary Policy Transmission: Some Implications for Emu and its Enlargement

17 Pages Posted: 28 Oct 2004

See all articles by Paul De Grauwe

Paul De Grauwe

CESifo (Center for Economic Studies and Ifo Institute for Economic Research); London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR)

Marc-Alexandre Senegas

University of Bordeaux - GRAPE

Abstract

In this article we analyse how the enlargement of a monetary union may affect the design of the common monetary policy when the latter transmits asymmetrically between the member countries. We find that the use of national information about inflation and unemployment in the design of the common monetary policy allows for tackling the heterogeneity induced by this asymmetry. This implies that if enlargement contributes to augmenting the transmission asymmetry of monetary policy in EMU, it will raise the need to take into account information about national economies in the formulation of optimal monetary policies in the monetary union. Furthermore, the choice for a new EU Member State to enter EMU will also depend on the monetary strategy implemented by the European Central Bank and, in particular, whether the latter would take the asymmetries in the transmission of monetary policy actions into account.

Suggested Citation

De Grauwe, Paul and De Grauwe, Paul and Senegas, Marc-Alexandre, Asymmetries in Monetary Policy Transmission: Some Implications for Emu and its Enlargement. Available at SSRN: https://ssrn.com/abstract=608496

Paul De Grauwe (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marc-Alexandre Senegas

University of Bordeaux - GRAPE ( email )

Avenue Leon Duguit
33608 Pessac Cedex, 33608
France

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