Asymmetric macroeconomic structures, economic integration and the common monetary policy in Europe

This paper reviews the literature on asymmetric monetary transmission within the European Monetary Union (EMU). At first, a stylized model is presented in order to highlight the importance of asymmetric monetary transmission for the decision-making of the European Central Bank (ECB). The transmission mechanism is then decomposed into several subsequent stages. Various macroeconomic indicators for the EU countries related to financial, goods and labor markets are then used to assess the empirical relevance of asymmetries across the EU countries. Then, models of a monetary union are used to assess to which extent cross-country differences in individual channels of transmission translate into differences in the overall strength of monetary transmission in Europe. Finally, the paper assesses the extent to which the transmission patterns in Europe converge as a result of the establishment of EMU. The paper finds the empirical evidence on cross-country differences in the policy impact to be inconclusive and provides suggestions for further theoretical and empirical research.