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Will a Common European Monetary Policy Have Asymmetric Effects?

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Author Info
Luigi Guiso (Università di Sassari and Ente Einaudi)
Anil K. Kashyap (University of Chicago and NBER)
Fabio Panetta () (Bank of Italy, Economic Research Department)
Daniele Terlizzese (Bank of Italy, Economic Research Department)

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Abstract

We survey the existing work on the cross-country differences in the transmission of European monetary policy. We find that prior work, focusing on macroeconomic data, does not clearly answer the question posed in the title and offer some explanations for the ambiguity. Aside from the inappropriate design of the prior empirical exercises, we point to the need to use microeconomic data to disentangle the potentially confounding effects of differences in the behavior of agents in different countries and the composition of agents across countries. We review the leading theories of monetary non-neutrality to find the structural features of the economy that in principle could alter the transmission mechanism. We provide some evidence that these structural features do differ markedly among the major European economies. We then explore the potential importance of these structural factors drawing on firm-level data from one country, Italy, and we show how the business cycle has differentially affected firms in Italy over the last decade. It appears that the 1992 monetary tightening and 1993 recession were not uniformly felt by Italian firms, but differed along the lines suggested by several of the theories. Several of the dimensions which appear to be important in the Italian experience are dimensions which vary noticeably across European countries, suggesting that further work on firm-level comparisons in other European countries may be valuable.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 384.

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Date of creation: Oct 2000
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Handle: RePEc:bdi:wptemi:td_384_00

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Related research
Keywords: monetary policy transmission asymmetries; firm level data;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

References listed on IDEAS
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  1. Stefan Gerlach & Frank Smets, 1995. "The monetary transmission mechanism: Evidence from the G-7 countries," BIS Working Papers 26, Bank for International Settlements. [Downloadable!]
    Other versions:
  2. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, 1999. "What Determines Firm Size?," NBER Working Papers 7208, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
    Other versions:
  4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier. [Downloadable!] (restricted)
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  5. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-60, December. [Downloadable!] (restricted)
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  6. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July. [Downloadable!] (restricted)
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  7. Ramana Ramaswamy & Torsten Slok, 1998. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Staff Papers, Palgrave Macmillan Journals, vol. 45(2), pages 6. [Downloadable!] (restricted)
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  8. Gerald A. Carlino & Robert DeFina, 1998. "Monetary policy and the U.S. and regions: some implications for European Monetary Union," Working Papers 98-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
  9. Guiso, L. & Jappelli, T. & Terlizzese, D., 1992. "Why is Italy Saving Rate so High?," Papers 167, Banca Italia - Servizio di Studi.
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  10. Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-28. [Downloadable!]
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  11. Ongena, Steven & Smith, David C., 2000. "What Determines the Number of Bank Relationships? Cross-Country Evidence," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 26-56, January. [Downloadable!] (restricted)
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  13. Kieler, M. & Saarenheimo, T., 1998. "Differences in Monetary Policy Transmission? A Case Not Closed," European Economy - Economic Papers 132, Commission of the EC, Directorate-General for Economic and Financial Affairs (DG ECFIN).
  14. Guiso, Luigi, 1998. "High-tech firms and credit rationing," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 39-59, March. [Downloadable!] (restricted)
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  15. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, December.
  16. Fernando Barran & Virginie Coudert & Benoit Mojon, 1996. "The transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center. [Downloadable!]
  17. Williamson, Stephen D, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 135-45, February. [Downloadable!] (restricted)
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  18. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  19. Michael A. Kouparitsas, 1999. "Is the EMU a viable common currency area? a VAR analysis of regional business cycles," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 2-20. [Downloadable!]
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  21. Dornbusch, Rudiger & Favero, Carlo A & Giavazzi, Francesco, 1998. "A Red Letter Day?," CEPR Discussion Papers 1804, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Anil K. Kashyap & Jeremy C. Stein, 1997. "The role of banks in monetary policy: a survey with implications for the European Monetary Union," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 2-18. [Downloadable!]
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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. Philip Vermeulen, 2000. "Business fixed investment: evidence of a financial accelerator in Europe," Working Paper Series 37, European Central Bank. [Downloadable!]
    Other versions:
  2. Andreas Worms, 2001. "The reaction of bank lending to monetary policy measures in Germany," Working Paper Series 096, European Central Bank. [Downloadable!]
  3. Matteo M. Iacoviello, 2000. "House prices and the macroeconomy in Europe: results from a structural VAR analysis," Working Paper Series 18, European Central Bank. [Downloadable!]
  4. Benoit Mojon & Frank Smets & Philip Vermeulen, 2001. "Investment and monetary policy in the Euro area," Working Paper Series 078, European Central Bank. [Downloadable!]
    Other versions:
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