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The Industry Effects of Monetary Policy in the Euro Area

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Author Info
Gert Peersman
Frank Smets

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Abstract

We first estimate the effects of a euro area-wide monetary policy change on output growth in eleven industries of seven euro area countries over the period 1980-98. On average the negative effect of an interest rate tightening on output is significantly greater in recessions than in booms. There is, however, considerable cross-industry heterogeneity in both the overall policy effects and the degree of asymmetry across the two business cycle phases. We then explore which industry characteristics can account for this cross-industry heterogeneity. Differences in the overall policy effects can mainly be explained by the durability of the goods produced in the sector. This can be regarded as evidence for the conventional interest rate/cost-of-capital channel. In contrast, differences in the degree of asymmetry of policy effects are related to differences in financial structure, in particular the maturity structure of debt, the coverage ratio, financial leverage and firm size. This suggests that financial accelerator mechanisms can partly explain cross-industry differences in asymmetry. Copyright 2005 Royal Economic Society.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2005.00991.x
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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 115 (2005)
Issue (Month): 503 (04)
Pages: 319-342
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Handle: RePEc:ecj:econjl:v:115:y:2005:i:503:p:319-342

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1833, Econometric Society. [Downloadable!]
  2. Garcia, R. & Schaller, H., 1995. "Are the Effects of Monetary Policy Asymmetric?," Cahiers de recherche 9505, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  3. Artis, M. & Krolzig, H.-M. & Toro, J., 1999. "The European Business Cycle," Economics Working Papers eco99/24, European University Institute.
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  4. Hamilton, James D & Perez-Quiros, Gabriel, 1996. "What Do the Leading Indicators Lead?," Journal of Business, University of Chicago Press, vol. 69(1), pages 27-49, January. [Downloadable!] (restricted)
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  5. Bernd Hayo, 1999. "Industry Effects of Monetary Policy in Germany," Macroeconomics 9906009, EconWPA. [Downloadable!]
  6. Kakes, Jan, 1998. "Monetary transmission and business cycle asymmetry," Research Report 98C36, University of Groningen, Research Institute SOM (Systems, Organisations and Management). [Downloadable!]
  7. Stephen D. Oliner & Glenn D. Rudebusch, 1996. "Is there a broad credit channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13. [Downloadable!]
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  8. Kashyap, Anil K & Lamont, Owen A & Stein, Jeremy C, 1994. "Credit Conditions and the Cyclical Behavior of Inventories," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 565-92, August. [Downloadable!] (restricted)
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  9. Frank Smets & Gert Peersman, 2001. "The monetary transmission mechanism in the Euro area: more evidence from VAR analysis (MTN conference paper)," Working Paper Series 091, European Central Bank. [Downloadable!]
  10. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-36, June. [Downloadable!] (restricted)
  11. Vermeulen, Philip, 2002. " Business Fixed Investment: Evidence of a Financial Accelerator in Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 217-35, July. [Downloadable!] (restricted)
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  12. Frank Smets & Gert Peersman, 2001. "Are the effects of monetary policy in the euro area greater in recessions than in booms?," Working Paper Series 052, European Central Bank. [Downloadable!]
  13. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Oleg Korenok & Bruce Mizrach & Stan Radchenko, 2004. "The Microeconomics of Macroeconomic Asymmetries: Sectoral Driving Forces and Firm Level Characteristics," Departmental Working Papers 200405, Rutgers University, Department of Economics. [Downloadable!]
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  2. Fidrmuc , Jarko & Horváth, Roman & Horváthová, Eva, 2008. "Corporate Interest Rates and the Financial Accelerator in the Czech Republic," Discussion Papers in Economics 7191, University of Munich, Department of Economics. [Downloadable!]
  3. Dietrich Franz, 2006. "Welfarism, Preferencism, Judgmentism," Research Memoranda 005, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  4. Andrew Hughes Hallett & Christian Richter, 2009. "Is the US no longer the economy of first resort? Changing economic relationships in the Asia-Pacific region," International Economics and Economic Policy, Springer, vol. 6(2), pages 207-234, July. [Downloadable!] (restricted)
  5. Natalie Chen & Jean Imbs & Andrew Scott, 2006. "The dynamics of trade and competition," Research series 200610-3, National Bank of Belgium. [Downloadable!]
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  6. G. Peersman & L. Pozzi, 2004. "Determinants of consumption smoothing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/231, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  7. Horvath, Roman, 2006. "Financial Accelerator Effects in the Balance Sheets of Czech Firms," MPRA Paper 829, University Library of Munich, Germany. [Downloadable!]
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  8. Lorenzo Bini Smaghi, 2006. "Economic Forecasting and Monetary Policy," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 75(2), pages 54-64. [Downloadable!] (restricted)
  9. Magdalena Morgese Borys & Roman Horváth, 2007. "The Effects of Monetary Policy in the Czech Republic: An Empirical Study," Working Papers IES 2007/26, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2007. [Downloadable!]
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  10. D. Van Den Poel, 2003. "Predicting Mail-Order Repeat Buying: Which Variables Matter?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/191, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  11. Paul Mizen & Cihan Yalcin, 2006. "Monetary Policy, Corporate Financial Composition and Real Activity," Working Papers 0601, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
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  12. Landon, Stuart & Smith, Constance, 2007. "Investment and the exchange rate: Short run and long run aggregate and sector-level estimates," MPRA Paper 9958, University Library of Munich, Germany. [Downloadable!]
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  13. Ghosh, Saibal, 2009. "Industry Effects of Monetary Policy: Evidence from India," MPRA Paper 17307, University Library of Munich, Germany. [Downloadable!]
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  14. Ivo J.M. Arnold & Clemens J.M. Kool & Katharina Raabe, 2005. "New evidence on the firm size effects in US monetary policy transmission," Working Papers 05-11, Utrecht School of Economics. [Downloadable!]
  15. Hafedh Bouakez & Emanuela Cardia & Francisco J. Ruge-Murcia, 2008. "Durable Goods, Inter-Sectoral Linkages and Monetary Policy," Cahiers de recherche 0821, CIRPEE. [Downloadable!]
  16. Andrew Hughes Hallett & Christian Richter, 2008. "Have the Eurozone economies converged on a common European cycle?," International Economics and Economic Policy, Springer, vol. 5(1), pages 71-101, July. [Downloadable!] (restricted)
  17. Eleni Angelopoulou & Heather D. Gibson, 2007. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK," Working Papers 53, Bank of Greece. [Downloadable!]
  18. Andrew Hallett & Christian Richter, 2006. "Measuring the Degree of Convergence among European Business Cycles," Computational Economics, Springer, vol. 27(2), pages 229-259, May. [Downloadable!] (restricted)
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