Monetary Policy in a Currency Union: is the Euro Good for All? ∗

In a currency union, if the uncertainties that member economies face are not homogeneous, a common monetary policy may be too tight or too loose for some members of the union depending on where their business cycle position is relative to the union as a whole. In addition, differences in the economic structure of member states could imply varying degree of business cycle amplifications. This paper studies the differentials in output and inflation across the Euro Area countries with an attempt to address the extent to which these differentials are explained by the propagation of common monetary policy interventions. In addition, the paper quantifies the differences in the country-specific effects of a monetary policy that targets the aggregate