Rules Versus Discretion Under Asymmetric Shocks

  title={Rules Versus Discretion Under Asymmetric Shocks},
  author={Pasquale Foresti},
Monetary policy design in currency unions faces more challenging scenarios like the presence of asymmetric shocks and the higher probability of time inconsistency. An evaluation of the union welfare under a monetary rule and under discretion in these circumstances is carried out. Assuming that the transmission of monetary policy is symmetric across countries, discretion is more desirable when the shocks show high variability and are symmetric. At the same time it is very important to implement… CONTINUE READING