The Effects of an Homogenous Unconventional Monetary Policy on a Financially Heterogeneous Monetary Union
Thibaud Cargoët  1, 2@  
1 : Centre de Recherche en Economie et Management  (CREM)  -  Site web
CNRS : UMR6211, Universite de Rennes 1, Université de Caen Basse-Normandie
2 : Université de Rennes 1  (UR1)  -  Site web
2 rue du Thabor - CS 46510 - 35065 Rennes cedex -  France

This paper provides a two-country DSGE model to analyze the consequences of homogenous non-conventional monetary policy decisions on an heterogeneous monetary union. In our setting heterogeneity arises endogenously from an occasionally binding credit constraint that generates a regional credit disruption in the peripheral part of the union. Our main results are twofold: First, we find that cross border lending plays an ambiguous role for transmitting a regional financial stress arising in the periphery to the global EMU level as it affects national situations in opposite directions. For the calibrated value adopted in our setting we find that it improved the global situation of the eurozone. Second, we find that the conduct of credit policy unambiguously improves the situation of the monetary union, albeit with differing consequences on national economies. Unsurprisingly, a homogenous credit policy leads to a second best situation with respect to unconventional policy measures targeting directly national situations in terms of financial stress. However, we find that most of the difference disappear for a value of cross-border lending neighboring 30% of total loan distribution at the monetary union level.

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