Monetary Policy in a Monetary Union: What Role for Regional Information?
by Paolo Angelinia, Paolo Del Giovanea, Stefano Sivieroa and Daniele Terlizzeseb
Can the central bank of a monetary union, whose objectives are exclusively defined
in terms of union-wide variables, improve its performance by reacting to regional
variables rather than to union-wide variables only? Our answer is not clear-cut.
We find the improvement to be large when we use a backward-looking model of
the economy and negligible when we use a hybrid model. The main determinant of
this finding seems to be the different degree of inertia (or its opposite, the
forward-lookingness) characterizing the two models, rather than other model
JEL Codes: E52.
(PDF, 28 pages 412 kb)
aEconomic Outlook and Monetary Policy Department, Bank of Italy
bEinaudi Institute for Economics and Finance, and Bank of Italy