The Regional Effects of Monetary Policy in Europe

Arnold, Ivo J.M.

doi:2001.16.3.399

The Journal of Economic Integration 2001 September;16(3) :399-420.
DOI: https://doi.org/10.11130/jei.2001.16.3.399

The Regional Effects of Monetary Policy in Europe

Ivo J.M. Arnold,

Universiteit Nyenrode

ABSTRACT

Since the inception of EMU, a common concern is that European monetary policy may have differential effects on EMU member countries. However, the reliance on cross-country evidence in the empirical literature risks overemphasizing the importance of cross-country differences in monetary transmission. This paper therefore takes a regional approach. Data from 58 European regions show significant cross-regional differences in the effects of monetary policy within the five largest EU countries. For all regions combined, I find a significant relationship between the impact of monetary policy and the industrial composition of regions, supporting earlier findings for the US. I conclude that at present the large European countries are regionally well-diversified enough to minimize the risk that ECB policy will produce a markedly different impact across countries.

Keywords: Monetary Transmission | Regional Effects | EMU