ii. The size of the firms in the territory: As relationships between financial intermediaries
and small firms are very different to relationships between banks and big companies.
As a result, a greater concentration of small firms in a given territory will explain part
of the different responses to monetary policy. This variable reflects, partially, the
different peculiarities in the asset prices and credit transmission channels; and,
iii. The financial structure of the territory: This variable can be measured as the
percentage of loans given by local banks, the relative weight of the 3 first banks or
other similar ratios. This variable is related with the bank channel.
The consideration of these characteristics for European countries show that countries as
Spain, Finland and Ireland have a greater response than France, Netherlands or Italy to a
common monetary shock while Germany, Austria, Belgium, Luxembourg and Portugal have a
very similar response and near to the average. In this sense, the results of Carlino and DeFina
(1998) show evidence in favour of the possibility that differences in monetary policy
responses could generate asymmetries in output evolution and, as a result, higher potential
costs derived from EMU.
A possible critique for these results is related with the dangers of extrapolating the results for
the American states to the European regions. To solve this problem, other possibility consists
in analysing the relevance of differences in monetary policy response in a well-established
currency area. In this sense, the analysis of European countries at a regional level offers this
possibility. De Lucio and Izquierdo (1998) analyse the case of the Spanish regions using the
long-run response of employment to a common monetary shock as an endogenous variable to
identify the possible determinants of asymmetries. The explanatory variables of the different
response are very similar to the ones found by Carlino and DeFina (1998, 1999).
Summarising, the literature reviewed in this section, there is a clear evidence about the
existence of national/regional asymmetries in responses to a common monetary policy and its
possible determinants. However, there is little research done on evaluating the existence of
asymmetries using direct information about these determinants and, which is more important,
in relating these differences with a lower cyclical symmetry on output evolution at a regional
level. In the next section a methodology is proposed to obtain a direct indicator of the relative
response of Spanish regions to a common monetary shock using data about its determinants