EMU and the regional impact of monetary policy

In this paper we focus on a topic which has been attracting renewed interest because of monetary unification in Europe: the regional dimension of national monetary policies. Most of the debate over the regional implications of the Eurc, has been developed within the Optimum Currency Area framework. According to this theory, European monetary policy would have regional effects when the countries of the Euro-zone had such structural differences as to produce asymmetric shocks. These asymmetrical effects could only be offset by labour mobility and wage/price flexibility. However, we argue here that, in addition, European monetary policy may have more general regional effects, including in particular by producing a higher instability in the pattern of credit availability for some peripheral regions. This latter possibility, and the forces underlying it, are explored here both at the theoretical level and the empirical level, examining the process by which monetary policy is transmitted.