Abstract

This paper analyses the effects of structural asymmetries in aggregate demand on the monetary policy of the ECB utilising a two-country, rational expectations model. The characteristics of the optimal monetary policy depend on the preferences of the Governing Council's members: "national" interests tend to coincide with those of the area as a whole only if the economies are identical or there is perfect substitutability among goods. If the countries that make up the union have different financial structures or different levels of openness to international trade, then the benefits of an active monetary policy, which responds to information from financial indicators, are very high. In fact, in the presence of structural asymmetries, the optimal monetary policy is influenced not only by the nature of the shock but also by its provenience since its propagation within the union depends upon the characteristics of the country that has been hit by the stochastic shock.