@TechReport{iza:izadps:dp17950,
            	author={Boehnert, Lukas and Ferra, Sergio de and Mitman, Kurt and Romei, Federica},
            	title={Monetary Policy in Currency Unions with Unequal Countries},
            	year={2025},
	month={Jun},
            	institution={Institute of Labor Economics (IZA)},
            	address={Bonn},
            	type={IZA Discussion Paper},
            	number={17950},
            	url={https://www.iza.org/publications/dp17950},
	abstract={We investigate how the composition of expenditure shapes the transmission of monetary policy in a currency union. European Monetary Union data reveal three facts: (1) higher inequality countries have larger service expenditure shares; (2) monetary policy has a weaker output impact in these high-service-share, high-inequality countries; and (3) monetary policy induces systematic trade flows between high- and low-service-share countries. We develop a New Keynesian model with non-homothetic preferences and heterogeneous sectoral income that rationalizes these facts. Pro-cyclical inequality, driven by wealthier households' greater income exposure to services, buffers poorer households' consumption to contractionary shocks, dampening overall policy transmission. Our findings suggest that accounting for cross-country differences in consumption and income distributions is essential for understanding common monetary policy.},
	keywords={currency union;monetary policy;inequality},
            }