Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264689 
Authors: 
Year of Publication: 
2005
Series/Report no.: 
Working Paper No. 97
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
I propose a unitary framework to interpret the links between differences in financial structures and the monetary policy regimes on the one hand, and the correlation of business cycles on the other. Using a two-country micro-founded model with financial frictions I predict that a greater financial diversity should reduce cyclical correlation under a given monetary regime, and that moving from independent monetary policies to a hard peg or a common currency should increase it, for any given degree of financial diversity. I use the recent experience of EMU to test these ideas, and show that my model explains reasonably well the broad patterns of business cycle correlation observed recently among the main euro area countries.
Subjects: 
financial diversity
monetary regimes
differential transmission mechanism
JEL: 
E3
E42
E44
E52
F41
Document Type: 
Working Paper

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