EMU: some unanswered questions

and, next, we analyse the implications of the existence of these asymmetries on regional
output evolution. The implications for EMU are clear and straightforward.

4. Implications for the European Regions: The Spanish case

As it has been previously exposed, the existence of different responses to a common monetary
policy can increase the degree of asymmetry among countries or regions taking part in a
currency area. The objective of this section consists in analysing the relevance of the different
impacts of monetary policy as a determinant of different output and prices evolution at a
regional level. First, a methodology to obtain a measure of the regional relative response to a
common monetary shock is proposed and second, the relationships between this indicator and
the output and prices evolution are considered.

4.1. Methodology and data

The results obtained by previous authors summarised in the previous sections remark the
relevance of differences in economic and financial structures as determinants of the regional
response to monetary policy (see figure 2).

In reference to the first aspect, as it has been stated in the introduction, from a theoretical
perspective it is possible that regional differences in economic activity will increase under
EMU. If this happens, the regional response of output to monetary policy will be more
different increasing the asymmetry and making more difficult macroeconomic adjustment in
participating countries. Although the available empirical evidence does not reflect any
important change in the most recent years in terms of an increase of specialisation, nowadays
there are important differences in the regional industry-mix, which allow the existence of
different responses. In this sense, together with the differences in the size of firms located in
the territory, these are the factors that must be taken into account to evaluate the existence of
different regional responses to a common monetary shock

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