Interest Rate Decisions in an Asymmetric Monetary Union

Egil Matsen and Øistein Røisland

Working Paper Series from Department of Economics, Norwegian University of Science and Technology

Abstract: Decision rules matter for monetary policy in a currency union if the interest rate affects member states differently. We examine the consequences for inflation, output and interest rate fluctuations and the welfare loss of four alternative types of decision procedures. We show that the alternative decision rules have very dissimilar properties and that different rules favour different types of countries. In addition to asymmetric transmission mechanisms, we consider asymmetric shocks. We show that it is the combination of a country’s interest rate elasticity and the covariance between the shocks to the country and the shocks to the union that determines which decision rule the country would favour.

Keywords: Monetary union; decision making; regional influences (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 F33 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2003-07-10
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Interest rate decisions in an asymmetric monetary union (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:nst:samfok:2803

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