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

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  • Paul De Grauwe
  • Marc‐Alexandre Sénégas

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.

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  • Paul De Grauwe & Marc‐Alexandre Sénégas, 2004. "Asymmetries in Monetary Policy Transmission: Some Implications for EMU and its Enlargement," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 757-773, November.
    • Handle: RePEc:bla:jcmkts:v:42:y:2004:i:4:p:757-773
    DOI: 10.1111/j.0021-9886.2004.00528.x
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    1. Ellen E. Meade & Nathan Sheets, 2002. "Regional influences on U.S. monetary policy: some implications for Europe," International Finance Discussion Papers 721, Board of Governors of the Federal Reserve System (U.S.).
    2. Michael Artis, 2003. "Is there a European Business Cycle?," CESifo Working Paper Series 1053, CESifo.
    3. Paul De Grauwe & Marc-Alexandre Sénégas, 2003. "Monetary Policy in EMU when the Transmission is Asymmetric and Uncertain," CESifo Working Paper Series 891, CESifo.
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    Cited by:

    1. Cristina Badarau Semenescu & Patrick Villieu & Nelly Gregoriadis, 2008. "Monetary policy transmission asymmetries in a heterogeneous monetary union: a simple contractual solution," Economics Bulletin, AccessEcon, vol. 5(20), pages 1-7.
    2. Pasquale Foresti, 2015. "Monetary and debt-concerned fiscal policies interaction in monetary unions," International Economics and Economic Policy, Springer, vol. 12(4), pages 541-552, October.
    3. Vassilis Monastiriotis & Sotirios Zartaloudis, 2010. "Beyond the crisis: EMU and labour market reform pressures in good and bad times," LEQS – LSE 'Europe in Question' Discussion Paper Series 23, European Institute, LSE.
    4. Pasquale Foresti, 2018. "Monetary And Fiscal Policies Interaction In Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 226-248, February.
    5. Castañeda, Juan E. & Cendejas, José Luis, 2022. "Macroeconomic asymmetry in the Eurozone before and after the Global Financial Crisis: An appraisal of the role of the ECB," Journal of Policy Modeling, Elsevier, vol. 44(1), pages 184-202.
    6. Marcin Wolski, 2016. "Welfare-theoretic Optimal Policies in a New-Keynesian Economy with Heterogeneous Regions: Any Role for Financial Integration?," Journal of Common Market Studies, Wiley Blackwell, vol. 54(3), pages 742-761, May.
    7. repec:ebl:ecbull:v:5:y:2008:i:20:p:1-7 is not listed on IDEAS
    8. Pasquale Foresti & Ugo Marani & Giuseppe Piroli, 2015. "Macroeconomic dynamics in four selected new member states of the EU," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 8(1), pages 40-51.
    9. Carsten Hefeker, 2006. "The monetary policy consequences of enlargement," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(04), pages 29-34, December.

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