In this paper we show how interbank market frictions can play an important role in propagating and enhancing the effects of shocks in a currency union, and discuss the efficacy of two unconventional policy measures; multi-period central bank refinance operations and large scale asset purchases....

What political objective should a common central bank in a heterogeneous monetary union pursue? Should it base its decisions on the EU-wide average of inflation and growth or should it instead focus on (appropriately weighted) national rates of inflation and growth? We find that a central bank...