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Monetary Policy In Emu With Asymmetric Transmission And Non‐Tradable Goods

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  • Daniel Gros
  • Carsten Hefeker

Abstract

Which policy objective should a central bank pursue in a monetary union with asymmetric monetary transmission and different rates of inflation? Should it base its decisions on the EU‐wide average of inflation and growth or should it instead focus on (appropriately weighted) national utility losses based on national rates of inflation and growth? We find that a policy which minimises the sum of national utility losses leads to higher average utility if the variability of common shocks is large relative to idiosyncratic demand shocks in the non‐tradables sectors. We draw conclusions for the appropriate weight of common and national objectives in the union.

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  • Daniel Gros & Carsten Hefeker, 2007. "Monetary Policy In Emu With Asymmetric Transmission And Non‐Tradable Goods," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 268-282, May.
    • Handle: RePEc:bla:scotjp:v:54:y:2007:i:2:p:268-282
    DOI: 10.1111/j.1467-9485.2007.00414.x
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    References listed on IDEAS

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    Cited by:

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    2. Farvaque, Etienne & Matsueda, Norimichi & Méon, Pierre-Guillaume, 2009. "How monetary policy committees impact the volatility of policy rates," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 534-546, December.

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