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Changes in euro area monetary transmission?

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  • Axel Weber
  • Rafael Gerke
  • Andreas Worms
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    Abstract

    Empirical evidence on whether euro area monetary transmission has changed is, at best, mixed. We argue that this inconclusiveness is likely to be due to the fact that existing empirical studies concentrate on the effects of particular developments on specific transmission channels. Such analyses typically require strong assumptions. Moreover, specific changes could have off-setting effects regarding the overall effectiveness of monetary policy. In order to shed light on this issue, we investigate whether there has been a significant change in the overall transmission of monetary policy to inflation and output by estimating a standard Vector Autoregression (VAR) for the euro area and by endogenously searching for possible break dates. We find a significant break point around 1996 and some evidence for a second one around 1999. We compare the effects of monetary policy shocks for these episodes and find that the well-known 'stylized facts' of monetary policy transmission remain valid. Therefore, we argue that the general guiding principles of the Eurosystem monetary policy remain adequate. Moreover, it seems that monetary transmission after 1998 is not very different from before 1996, but probably very different compared to the interim period.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 21 (2011)
    Issue (Month): 3 ()
    Pages: 131-145

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    Handle: RePEc:taf:apfiec:v:21:y:2011:i:3:p:131-145

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    Cited by:
    1. Dmitry Kulikov & Aleksei Netšunajev, 2013. "Identifying monetary policy shocks via heteroskedasticity: a Bayesian approach," Bank of Estonia Working Papers wp2013-9, Bank of Estonia, revised 09 Dec 2013.
    2. Prettner, Catherine & Prettner, Klaus, 2014. "How interdependent are Eastern European economies and the Euro area?," Center for European, Governance and Economic Development Research Discussion Papers 187, University of Goettingen, Department of Economics.
    3. Matteo Barigozzi & Antonio Conti, 2013. "On the Stability of Euro Area Money Demand and its Implications for Monetary Policy," LEM Papers Series 2013/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. Ács, Attila, 2014. "Pénzintézeti mérlegadatok monetáris politikai újraértelmezése. A brókerkereskedő szervezetek reálgazdasági és likviditási jelentősége
      [Reconsidering the role of financial institution
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 166-192.
    5. Matteo Barigozzi & Antonio M. Conti & Matteo Luciani, 2013. "Do euro area countries respond asymmetrically to the common monetary policy?," Temi di discussione (Economic working papers) 923, Bank of Italy, Economic Research and International Relations Area.

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