In the United States, smoothing is mainly undertaken by private investors and companies who, by diversifying their holdings across states, can mitigate recessionary pressures in their own state through financial income from other jurisdictions not hit by negative shocks.7 The crisis has once again reminded us of a fundamental lesson: as the euro area is set to widen, it must strengthen its institutional structure.
Or, by controlling domestic inflation directly and allowing our currency to float. We cannot target both the exchange rate and domestic inflation because monetary policy has only one instrument to work with - the policy interest rate. So realistically, it can aim only at one target.