Heterogeneous "Credit Channels" and Optimal Monetary Policy in a Monetary Union

Working Papers from Banca Italia - Servizio di Studi

Abstract: 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.

Keywords: CREDIT; MONEY; FINANCIAL MARKET; EUROPE (search for similar items in EconPapers)
JEL-codes: E5 F3 (search for similar items in EconPapers)
Date: 1998
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Related works:
Working Paper: Heterogeneous "Credit Channels" and Optimal Monetary Policy in a Monetary Union (1998)
Working Paper: Heterogeneous "Credit Channels: and Optimal Monetary Policy in a Monetary Union (1997)
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