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One Money, Many Markets - A Factor Model Approach to Monetary Policy in the Euro Area with High-Frequency Identification

Author

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  • Corsetti, G.
  • Duarte, J. B.
  • Mann, S.

Abstract

We reconsider the effects of common monetary policy shocks across countries in the euro area, using a data-rich factor model and identifying shocks with high-frequency surprises around policy announcements. We show that the degree of heterogeneity in the response to shocks, while being low in financial variables and output, is significant in consumption, consumer prices and macro variables related to the labour and housing markets. Mirroring country-specific institutional and market differences, we find that home ownership rates are significantly correlated with the strength of the housing channel in monetary policy transmission. We document a high dispersion in the response to shocks of house prices and rents and show that, similar to responses in the US, these variables tend to move in different directions.

Suggested Citation

  • Corsetti, G. & Duarte, J. B. & Mann, S., 2018. "One Money, Many Markets - A Factor Model Approach to Monetary Policy in the Euro Area with High-Frequency Identification," Cambridge Working Papers in Economics 1816, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1816
    Note: gc422, jbnad2, sm959
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    Cited by:

    1. Hintermaier, Thomas & Koeniger, Winfried, 2018. "Differences in Euro-Area Household Finances and their Relevance for Monetary-Policy Transmission," Economics Working Paper Series 1806, University of St. Gallen, School of Economics and Political Science, revised Nov 2019.
    2. Koeniger, Winfried & Lennartz, Benedikt & Ramelet, Marc-Antoine, 2022. "On the transmission of monetary policy to the housing market," European Economic Review, Elsevier, vol. 145(C).
    3. Marek Jarociński & Peter Karadi, 2020. "Deconstructing Monetary Policy Surprises—The Role of Information Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(2), pages 1-43, April.
    4. Jef Boeckx & Maarten Dossche & Alessandro Galesi & Boris Hofmann & Gert Peersman, 2019. "Do SVARs with sign restrictions not identify unconventional monetary policy shocks?," Working Papers 1926, Banco de España.
    5. Darmouni, Olivier & Geisecke, Oliver & Rodnyanky, Alexander, 2019. "The Bond Lending Channel of Monetary Policy," MPRA Paper 95141, University Library of Munich, Germany.
    6. Cumming, Fergus, 2022. "Mortgage cash-flows and employment," European Economic Review, Elsevier, vol. 144(C).
    7. Ester Faia & Vincenzo Pezone, 2019. "Monetary Policy and the Cost of Wage Rigidity: Evidence from the Stock Market," 2019 Meeting Papers 278, Society for Economic Dynamics.
    8. Hirsch, Patrick, 2019. "Heterogeneous rental markets in a DSGE model of the euro area," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203633, Verein für Socialpolitik / German Economic Association.
    9. Cumming, Fergus, 2018. "Mortgages, cash-flow shocks and local employment," Bank of England working papers 773, Bank of England.
    10. Antoine Camous & Dmitry Matveev, 2019. "Furor over the Fed : Presidential Tweets and Central Bank Independence," Staff Analytical Notes 2019-33, Bank of Canada.
    11. Christoph Albert & Andrea Caggese & Beatriz González, 2020. "The short- and long-run employment impact of Covid-19 through the effects of real and financial shocks on new firms," Economics Working Papers 1739, Department of Economics and Business, Universitat Pompeu Fabra.
    12. Koeniger, Winfried & Lennartz, Benedikt & Ramelet, Marc-Antoine, 2022. "On the transmission of monetary policy to the housing market," European Economic Review, Elsevier, vol. 145(C).
    13. Altavilla, Carlo & Brugnolini, Luca & Gürkaynak, Refet S. & Motto, Roberto & Ragusa, Giuseppe, 2019. "Measuring euro area monetary policy," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 162-179.
    14. Marek Jarocinski & Peter Karadi, 2017. "Central Bank Information Shocks," 2017 Meeting Papers 1193, Society for Economic Dynamics.
    15. Giancarlo Corsetti & Joao B. Duarte & Samuel Mann, 2020. "One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area," IMF Working Papers 2020/108, International Monetary Fund.
    16. Ester Faiaa & Sören Karau, 2021. "Systemic Bank Risk and Monetary Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 17(71), pages 1-40, December.
    17. Faia, Ester & Pezone, Vincenzo, 2018. "The Cost of Wage Rigidity," CEPR Discussion Papers 13407, C.E.P.R. Discussion Papers.
    18. Adam Elbourne & Kan Ji, 2019. "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?," CPB Discussion Paper 391, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Adam Elbourne & Kan Ji, 2019. "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?," CPB Discussion Paper 391.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    Keywords

    Monetary Policy; High-Frequency Identification; Monetary Union; Labour Market; Housing Market.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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