Dilemma of One Common Central Bank in a Heterogeneous Monetary Union

Séverine Menguy ()
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Séverine Menguy: Université de Paris X-Nanterre, Postal: EconomiX. Université de Paris X-Nanterre, bâtiment K, 200 Avenue de la République, 92001 Nanterre Cedex, France

Journal of Economic Integration, 2008, vol. 23, 791-816

Abstract: The paper studies the appropriate weight that the central bank of a heterogeneous monetary union should give to each specific country. To stabilize symmetric shocks, the central bank should give a bigger weight to the countries where the rigidity in the labor market and the sensibility of the demand to the interest rate are the highest, whereas equally weighting each country is justified for asymmetric shocks. Moreover, the central bank should overweight the country which has a smaller preference for sustaining the economic activity and a higher preference for stabilizing public expenditures.

Keywords: monetary policy; monetary union; structural heterogeneity; heterogeneity in preferences (search for similar items in EconPapers)
JEL-codes: E52 E63 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0454

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