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Towards an explanation of cross-country asymmetries in monetary transmission

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  • Georgiadis, Georgios

Abstract

This paper quantifies the importance of financial structure, labor market rigidities and industry mix for the monetary transmission mechanism. To do so, I determine how closely the impulse responses to a monetary policy shock obtained from country-specific vectorautoregressive (VAR) models and a non-standard panel VAR model match. In the country-specific VAR models, the impulse responses vary across countries in an unrestricted fashion. In the panel VAR model, the impulse responses also vary across countries, but only to the extent that countries differ regarding their financial structure, labor market rigidities and industry mix. For a sample of 20 industrialized countries over the time period from 1995 to 2009, I find that up to 70% (50%) of the cross-country asymmetries in the responses of output (prices) to a monetary policy shock can be replicated by accounting for cross-country differences in financial structure, labor market rigidities and industry mix. Moreover, while in the short run asymmetries in the output responses arise mainly due to cross-country differences in industry mix, in the medium run differences in financial structure and labor market rigidities are more important. Finally, cross-country differences in industry mix appear to be of rather minor importance for cross-country asymmetries in the transmission of monetary policy to prices.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 39 (2014)
Issue (Month): PA ()
Pages: 66-84

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Handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:66-84

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Monetary transmission; Financial structure; Labor market rigidities; Industry mix; Panel VAR; Heterogeneity;

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Citations

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Cited by:
  1. Zsolt Darvas, 2012. "Monetary transmission in three central European economies: evidence from time-varying coefficient vector autoregressions," Working Papers 722, Bruegel.
  2. Alfred A. Haug & Tomasz Jedrzejowicz & Anna Sznajderska, 2013. "Combining Monetary and Fiscal Policy in an SVAR for a Small Open Economy," Working Papers 1313, University of Otago, Department of Economics, revised Oct 2013.
  3. Georgiadis, Georgios, 2014. "Towards an explanation of cross-country asymmetries in monetary transmission," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 66-84.
  4. Georgiadis, Georgios, 2012. "The panel conditionally homogenous vectorautoregressive model," MPRA Paper 37755, University Library of Munich, Germany.
  5. Jakub Mateju, 2013. "Explaining the Strength and the Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model," Working Papers IES 2013/18, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2013.
  6. Cécile Couharde & Rémi Generoso, 2014. "The ambiguous role of remittances in West African countries facing climate variability," EconomiX Working Papers 2014-37, University of Paris West - Nanterre la Défense, EconomiX.

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