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Assessing the Effects of Financial Heterogeneity in a Monetary Union : A DSGE Approach

Author

Listed:
  • Christina Badarau

    (Larefi, Université Bordeaux IV)

  • Grégory Levieuge

    (LEO,Université d'Orléans)

Abstract
The aim of this article is to analyze how financial heterogeneity can accentuate the cyclical divergences inside a monetary union that faces technological, monetary and financial shocks. To this purpose, this study relies on a two-country Dynamic Stochastic General Equilibrium model, where the two countries are supposed to be differently sensitive to the bank capital channel. The model allows us to demonstrate how a given symmetric shock causes cyclical divergences inside a heterogeneous monetary union. On this point, it allows reproducing some stylized facts recently observed in the UE. Moreover, it appears that the more heterogeneous the union, the larger the effects of financial asymmetries on the transmission of shocks. Finally, we show that a common monetary policy contributes to worsen cyclical divergences, in comparison with monetary policies that would be nationally conducted.

Suggested Citation

  • Christina Badarau & Grégory Levieuge, 2011. "Assessing the Effects of Financial Heterogeneity in a Monetary Union : A DSGE Approach," Larefi Working Papers 1108, Larefi, Université Bordeaux 4.
    • Handle: RePEc:laf:wpaper:cr1108
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Naohisa Hirakata & Nao Sudo & Kozo Ueda, 2017. "Chained Credit Contracts And Financial Accelerators," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 565-579, January.
    3. Badarau, Cristina & Popescu, Alexandra, 2014. "Monetary policy and credit cycles: A DSGE analysis," Economic Modelling, Elsevier, vol. 42(C), pages 301-312.
    4. Grégory LEVIEUGE & Cristina BADARAU-SEMENESCU, 2010. "Which policy-mix to mitigate the effects of the financial heterogeneity in a monetary union?," EcoMod2010 259600105, EcoMod.
    5. Benjamin Schwanebeck, 2017. "Unconventional Monetary Policy in a Financially Heterogeneous Monetary Union," MAGKS Papers on Economics 201741, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Cristina Badarau & Alexandra Popescu, 2015. "Monetary policy and financial stability: what role for the interest rate?," International Economics and Economic Policy, Springer, vol. 12(3), pages 359-374, September.
    7. Oros, Cornel & Zimmer, Blandine, 2015. "Uncertainty and fiscal policy in a monetary union: Why does monetary policy transmission matter?," Economic Modelling, Elsevier, vol. 50(C), pages 85-93.
    8. Julia Durcova, 2021. "The Impact of Interest Rate Transmission Channel on the Prices Development in the Eurozone Countries," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 17(2), pages 23-35.
    9. Palek, Jakob & Schwanebeck, Benjamin, 2017. "Financial frictions and optimal stabilization policy in a monetary union," Economic Modelling, Elsevier, vol. 61(C), pages 462-477.
    10. Marie-Pierre HORY & Grégory LEVIEUGE & Daria ONORI, 2018. "The (low) fiscal multiplier when debt is denominated in foreign currency," LEO Working Papers / DR LEO 2583, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    11. Sangaré, Ibrahima, 2016. "External shocks and exchange rate regimes in Southeast Asia: A DSGE analysis," Economic Modelling, Elsevier, vol. 58(C), pages 365-382.
    12. Ibrahima Sangaré, 2014. "Chocs extérieurs et régimes monétaires en Asie du Sud-Est : une analyse DSGE," Working Papers hal-00949973, HAL.
    13. Christina Badarau & Grégory Levieuge, 2011. "Which policy-mix to mitigate the effects of financial heterogeneity in a monetary union?," Larefi Working Papers 201109, Larefi, Université Bordeaux 4.

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    More about this item

    Keywords

    Financial Heterogeneity; Bank Capital Channel; DSGE Model; Euro Area;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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