New study reveals how monetary policy impacts currency union stability.
The study looks at how monetary policy works in a group of countries sharing the same currency. By considering the cost channel, the researchers found that this can make monetary policy less effective in certain situations. However, they discovered that using the policy more strongly can help counteract this. Additionally, the impact of individual country shocks on the overall economy depends on how strong the cost channel is. If it's strong enough, the interest rate can be used to influence the supply side of the economy.