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 to better 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 optimal monetary instrument with respect to a wide range of stochastic disturbances.
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Paper provided by Banca Italia - Servizio di Studi in its series Papers with number
340.
Find related papers by JEL classification: E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit F3 - International Economics - - International Finance
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