53rd OeNB Annual Economic Conference - Day 2

53rd OeNB Annual Economic Conference in cooperation with SUERF Monetary policy trade-offs in a heterogeneous currency area Monetary policy in a heterogeneous currency area faces inherent trade-offs because differences across countries, regions, sectors and groups shape both how shocks are transmitted and how effectively policy works. A single monetary policy action – such as adjusting interest rates – affects agents differently, stabilising prices and output for some, while potentially increasing risks to output, employment or financial stability for others. These variations generate multiple trade-offs: When pursuing disinflation, policymakers may need to balance the goal of lowering inflation with potential costs across sectors and regions. Conversely, a single expansionary monetary policy aimed at avoiding below-target inflation at the aggregate level may perpetuate inflation or create financial imbalances in some sectors, regions or countries. The tools available to central banks – policy rates, balance sheet operations and communication – are limited and cannot address all these trade-offs on their own. Complementary fiscal and macroprudential policies are essential in supporting the overall economy and managing sectoral or regional disparities. A clear understanding of heterogeneity within the monetary union is crucial for calibrating macroeconomic policies that support economies operating near potential, sustain inflation close to target and mitigate the risk of creating or worsening financial or economic vulnerabilities. ▬▬ Contents of this video ▬▬▬▬▬▬▬▬▬▬ Academic session 2: Firms, productivity dispersion and sectoral shocks Moderator: Alex Grimaud, Economist Oesterreichische Nationalbank The Transmission of Foreign Shocks in a Networked Economy by José-Elías Gallegos, Banco de España Co-authors: Pablo Aguilar, Rubén Domínguez-Díaz, Javier Quintana Beyond Risk: Firm Financing and Interest Rates by Nicholas Kozeniauskas, Banco de Portugal Co-author: Miguel H Ferreira Monetary policy and supply-side turnover by Henning Weber, Deutsche Bundesbank Co-author: Klaus Adam Policy session 4: Firms, productivity dispersion and sectoral shocks Moderator: María T. Valderrama, Head of Monetary Policy, Oesterreichische Nationalbank Michael Reiter, Senior Researcher, Institute for Advanced Studies Vienna Jacob Short, Director of the Heterogeneity Laboratory, Bank of Canada Javier Yaniz Igal, Head of the Macroeconomic Imbalances Unit, European Commission (DG ECFIN)