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Asymmetric monetary policy effects in EMU

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Author Info
Volker Clausen
Bernd Hayo

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Abstract

This paper develops a semi-structural modelling approach to study asymmetric monetary transmission in Europe. A system of dynamic equations containing reaction functions for monetary policy as well as output gap and inflation equations is simultaneously estimated for France, Germany and Italy. We find asymmetries on the demand side in the strength of interest rate transmission and on the supply side in the effects of the output gap on inflation. The responses are similar in Germany and Italy and generally stronger than in France. Out-of-sample tests do not find a structural break in the transmission mechanisms prior to the establishment of the European Monetary Union.

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

Volume (Year): 38 (2006)
Issue (Month): 10 (June)
Pages: 1123-1134
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Handle: RePEc:taf:applec:v:38:y:2006:i:10:p:1123-1134

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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. Benoît Mojon, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 40, European Central Bank. [Downloadable!]
  2. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
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  4. Aksoy, Yunus & De Grauwe, Paul & Dewachter, Hans, 2002. "Do asymmetries matter for European monetary policy?," European Economic Review, Elsevier, vol. 46(3), pages 443-469, March. [Downloadable!] (restricted)
  5. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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  6. Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 58-83, March. [Downloadable!] (restricted)
  7. Stephen G. Cecchetti, 1999. "Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism," NBER Working Papers 7151, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Ivo J.M. Arnold & Casper G. de Vries, 1999. "Endogenous Financial Structure and the Transmission of ECB Policy," Tinbergen Institute Discussion Papers 99-021/2, Tinbergen Institute. [Downloadable!]
  9. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
  10. Gerlach, Stefan & Schnabel, Gert, 1999. "The Taylor Rule and Interest Rates in the EMU Area," CEPR Discussion Papers 2271, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. 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!]
  12. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
  13. Hagen, Jurgen von & Fratianni, Michele, 1990. "German dominance in the EMS: evidence from interest rates," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 358-375, December. [Downloadable!] (restricted)
  14. Ignazio Angeloni & Benoit Mojon & Anil K. Kashyap & Daniele Terlizzese, 2002. "Monetary transmission in the Euro Area: where do we stand?," Working Paper Series 114, European Central Bank. [Downloadable!]
  15. Wyplosz, Charles, 1989. "Asymmetry in the EMS: Intentional or systemic?," European Economic Review, Elsevier, vol. 33(2-3), pages 310-320, March. [Downloadable!] (restricted)
  16. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  17. Volker Clausen & Hans-Werner Wohltmann, 2002. "Monetary and Fiscal Policy Dynamics in an Asymmetric Monetary Union," Macroeconomics 0201001, EconWPA. [Downloadable!]
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  18. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Blackwell Publishing, vol. 2(1), pages 85-116, April. [Downloadable!] (restricted)
Full references

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. Jochen Michaelis & Heike Minich, 2004. "Inflationsdifferenzen im Euroraum - Eine Bestandsaufnahme," Discussion Papers in Economics 62/04, University of Kassel, Institute of Economics. [Downloadable!]
    Other versions:
  2. Clement van de Coevering, 2003. "Structural convergence and monetary integration in Europe," MEB Series (discontinued) 2003-20, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
  3. Volker Clausen & Bernd Hayo, 2002. "Makroökonomische Implikationen der Mitgliedschaft Deutschlands in der Europäischen Währungsunion," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(3), pages 339-353.
  4. Bernd Hayo, 2006. "Is European Monetary Policy Appropriate for the EMU Member Countries? A Counterfactual Analysis," Marburg Working Papers on Economics 200610, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
    Other versions:
  5. Andrzej Toroj, 2009. "Macroeconomic adjustment and heterogeneity in the euro area," National Bank of Poland Working Papers 54, National Bank of Poland, Economic Institute. [Downloadable!]
  6. Martin O'Brien, 2007. "Real Interest Parity in the EU and the Consequences for Euro Area Membership: Panel Data Evidence, 1979-2005," Papers WP183, Economic and Social Research Institute (ESRI). [Downloadable!]
  7. Daniel Gros & Carsten Hefeker, 2001. "Asymmetries in European Labour Markets and Monetary Policy in Euroland," Occasional Papers 01, European Network of Economic Policy Research Institutes. [Downloadable!]
  8. Andrzej Toroj, 2008. "Estimation of weights for the Monetary Conditions Index in Poland," Working Papers 27, Department of Applied Econometrics, Warsaw School of Economics. [Downloadable!]
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