Legal Structure, Financial Structure and the Monetary Policy Transmission Mechanism

Over the past decade, the countries of central Europe have become more alike in many ways. As the new members of the European Monetary Union (EMU) prepared for the birth of the Euro on 1 January 1999, their economic policies became substantially more uniform. All eleven countries in the new Euro Area had virtually eliminated inflation and taken serious steps toward fiscal consolidation.2 As their monetary and fiscal policies have adjusted to meet these common goals, the countries’ business cycle fluctuations appear to have become more synchronised as well.3 While this makes the job of the European System of Central Banks (ESCB) easier, numerous difficult challenges remain. Primary among these is the making of policy in the face of the possibility that it will have differential impacts across the countries of the Euro Area.