Monetary policy and the financial accelerator in a monetary union

Simon Gilchrist (), Jean-Olivier Hairault () and Hubert Kempf ()

No 175, Working Paper Series from European Central Bank

Abstract: In this paper, we consider the effect of a monetary union in a model with a significant role for financial market imperfections. We do so by introducing a financial accelerator into a stochastic general equilibrium macro model of a two country economy. We show that financial market imperfections introduce important cross-country transmission mechanisms to asymmetric shocks to supply and demand. Within this framework, we study the likely costs and benefits of monetary union. We also consider the effects of cross-country heterogeneity in financial markets. Both the presence of financial frictions and the use of a single currency have significant impacts on the international propagation of exogenous shocks. The introduction of asymmetries in the financial contract widens the differences in cyclical behavior of national economies in a monetary union, but financial integration compensates the loss of policy instruments. JEL Classification: E52; F31; F33.

Keywords: Financial accelerator; exchange rate policy; monetary economics; monetary policy and international economics. (search for similar items in EconPapers)
Date: Written
View list of references View citations in EconPapers

Downloads: (external link)
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp175.pdf (application/pdf)

Related works:
Working Paper: Monetary policy and the financial accelerator in a monetary union (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20020175

Ordering information: This working paper can be ordered from
Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank
Address: Postfach 16 03 19, Frankfurt am Main, Germany
Contact information at EDIRC.
Series data maintained by Official Publications ().