EMU: some unanswered questions



In particular, the industry-mix of the territory is approximated by two different variables: the
relative weights of the manufacturing and the building sectors on the total Gross Added Value
(GAV) of the region. In this sense, as the manufacturing and the building sectors are much
more sensitive to monetary policy decisions than other sectors (keynesian transmission
mechanisms), in regions where these sectors are more important, the response to monetary
shocks will be higher than in the rest.

In respect to the size of regional firms, the firm size has been approximated by the average
number of workers per establishment in every region. Firms with a higher number of workers
(a bigger size) have more possibilities to access capital markets or to have more capacity for
self-financing. So, if firms located in a given region are bigger than firms in the other,
monetary policy would be less effective there than in the others.

In this sense, the regional response of a given region to a monetary shock in relation to the
rest of regions in the country will be determined by the values of these three variables: it will
be higher than in the rest if the manufacturing and the building are more relevant in the
considered regions, and it will be lower, if the average firm size is higher than in the rest. So,
if we are interested in identifying those regions in a country with a higher or lower relative
response to monetary policy, it is possible to elaborate a regional indicator combining the
values of these variables for every region in deviations from the national average. Thus, the
value of the indicator for the Spanish region
j will be given by the following expression:

INDj = (X1j - Xesp )+ (X2 - X2sp )- (X3 - Xs )

where X1j is the relative weight of manufacturing sector in region j, X1esp is the relative weight
of the manufacturing sector in Spain,
X2j is the relative weight of the building sector in region
j, X2esp is the relative weight of the building sector in Spain, X3j is the average size of firms
located in region
j, and X3esp is the average size of firms located in Spain. As it has been
previously stated, the influence of the first two variables on the indicator (the regional
response) would be positive, while the third would be negative. So, if the indicator takes
positive values, the regional response to a common monetary shock would be higher to the
response at a national level, and, if it takes negative values it would be lower.

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