EMU: some unanswered questions

4.2. Implications of the empirical results

But, which are the implications of the existence of these differences? From a theoretical
perspective, if some regions response with higher intensity to a common monetary shock than
the national average, when the shock is positive (expansive monetary policy), the regional
output growth rate will be higher than the national average, and, when the shock is negative
(contractionary monetary policy), the regional growth will be lower. If this is true, the
regional cyclical component of output evolution will be higher than the national component in
regions with higher responses to monetary policy. In other words, the variance of output in
these regions will be higher than the variance of national output. Figure 4 represents the
relationship between the standard deviation of the regional GAV growth rate and the indicator
of the regional relative response to monetary policy. As it can be seen, there is an empirical
positive relationship between both variables. These results reinforce, then, the idea that
different responses to a common monetary policy can increase the degree of cyclical
synchrony of regional economies and, as a result, it can increase the costs of taking part in a
currency union.

Figure 4. Relationship between the GAV growth rate standard deviation and the indicator of
monetary policy relative responses

08

Indicator

GAVsd = 0,58 + 0,8∙10^-3∙IND + e R²=0,34
(0.002) (0.3∙10^-3)

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