Emu, Monetary Policy and the Role of Financial Constraints

This paper presents some preliminary findings on the impact of a single European monetary policy on industrial performance. Literature on the potential for differential monetary policy impact to drive asymmetric responses across the Union is surveyed, and the importance of the credit channel of policy is identified. The key role of financial constraints on firms is noted. A different treatment of the constraint is then suggested, and shown through modelling to be consistent with the stylised facts of firm size. An econometric approach based on this model is then outlined as the basis for future research. This paper has been prepared under the Fifth EU Framework Programme, Key Action: Improving the Socio-economic Knowledge Base