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Cristina Badarau Semenescu, Patrick Villieu and Nelly Gregoriadis
''Monetary policy transmission asymmetries in a heterogeneous monetary union: a simple contractual solution''
( 2008, Vol. 5 No.20 )
In this paper, we show that imposing linear penalties on inflation and income divergences to a common central bank could be an interesting solution to stabilization problems in a heterogeneous monetary Union. We find an “optimal contract” for monetary policy which enforces the optimal solution for maximizing Union-wide welfare. This contract may provide a good institutional response to stabilization problems raised by monetary policy transmission asymmetries, as described in De Grauwe & Senegas (2004).
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
F3 - International Finance: General
Manuscript Received : Apr 24 2008 Manuscript Accepted : Jul 21 2008

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