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Has the Transmission Mechanism of European Monetary Policy Changed in the Run-Up to EMU?

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  • Ciccarelli, Matteo
  • Rebucci, Alessandro

Abstract

This Paper studies empirically the transmission mechanism of European monetary policy by means of time-varying, heterogenous coefficient models estimated in a numerical Bayesian fashion. Based on pre-EMU evidence from Germany, France, Italy, and Spain, we find that (i) the long-run cumulative impact on output of a common, homoskedastic monetary policy shock has decreased in all countries after 1991. These declines are statistically significant and accompanied by some changes in the conduct of monetary policy over the same period. At the same time, we also find that (ii) cross-country differences in the effects of the shock analysed have not decreased over time.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4535.

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Date of creation: Sep 2004
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Handle: RePEc:cpr:ceprdp:4535

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Keywords: Bayesian estimation; european monetary policy; Gibbs sampling; time-varying coefficient model; transmission mechanism;

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References

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  1. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
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  10. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
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