THE IMPACT OF MONETARY SHOCKS ON REGIONAL OUTPUT: EVIDENCE FROM FOUR SOUTH EUROZONE COUNTRIES

This paper quantifies the importance of Optimal Currency Area (OCA) criteria for the monetary policy transmission mechanism at the regional level. The study employs a Bayesian PVAR model to measure the impact of monetary policy shocks on regional output of 58 regions of four South Euro-Zone countries: Greece, Spain, Italy and Portugal over the period 1980-2009. The results provide evidence of different regional responses of regional GDP on monetary policy shocks. The policy’s asymmetric effects are explained by employing the OCA framework.