Title: Monetary policies in the presence of asymmetries
Authors: De Grauwe, Paul # ×
Issue Date: Nov-2000
Publisher: Blackwell publ ltd
Series Title: Journal of common market studies vol:38 issue:4 pages:593-612
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.
ISSN: 0021-9886
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of International Economics, Leuven
× corresponding author
# (joint) last author

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