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Journal of Economic Integration 2008 December;23(4) :791-816.
DOI: https://doi.org/10.11130/jei.2008.23.4.791
Dilemma of One Common Central Bank in a Heterogeneous Monetary Union
Séverine Menguy 
Université de Paris X-Nanterre
Copyright ©2008 Journal of Economic Integration
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

JEL Classification: E52, E63

Keywords: monetary policy | monetary union | structural heterogeneity | heterogeneity in preferences
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