U.S. and Euro-Area Monetary Policy by Regions

Abstract

Even in areas that have a common currency, economic conditions can vary greatly from one region to another. So a single uniform monetary policy may not be appropriate. For example, a simple monetary policy rule at times recommends different interest rates for different regions of the United States. Among euro-area countries, such a rule typically recommends an even greater divergence in interest rates, partly due to lower labor mobility, and less use of fiscal transfers to help smooth shocks. A recent Economic Letter applied the well-known Taylor rule for determining the monetary policy interest rate to illustrate the economic divergence between core and peripheral European countries (Nechio 2011). The letter demonstrated that the European Central Bank’s (ECB) target rate closely resembled the policy rate predicted by the Taylor rule for the euro area as a whole. At the same time though, the Taylor rule indicated that substantially different rates were appropriate for core and peripheral European economies. That difference reflected large economic disparities among euro-area countries. Similarly, economic conditions in the United States frequently differ from one region to another. Of course, in the face of free movement of financial assets throughout the country, the Federal Reserve must

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 13 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.