Should monetary policy take account of national labor market asymmetries in a currency union?

Christian Proaño

Economics Bulletin, 2012, vol. 32, issue 3, 1878-1889

Abstract: This paper investigates the design of optimal monetary policy in a currency union with asymmetric national labor markets. For this purpose a stylized theoretical two-country model is introduced where the occurrence of inflation differentials is a reflection of asymmetries in the labor market flexibility between the two countries. Through numerical simulations it is shown that a larger weight of the country with the more sclerotic labor market in the loss function of the monetary union's central bank is more advantageous at the monetary union's level than a simple weighting scheme based on the relative economic size of both countries.

Keywords: Monetary Policy; Labor Market Rigidities; Monetary Unions (search for similar items in EconPapers)
JEL-codes: E0 E5 (search for similar items in EconPapers)
Date: 2012-07-12
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Should Monetary Policy Take Account of National Labor Market Asymmetries in a Currency Union? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-11-00362

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