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Endogenous Financial Structure and the Transmission of ECB Policy

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  • Ivo J.M. Arnold

    (Nijenrode University)

  • Casper G. de Vries

    ()
    (Erasmus University Rotterdam and NIAS)

Abstract

There is a widely held view that existing differences in the capital and moneymarket structures across EMU countries are an important matter of concern forthe ECB, because they might hinder the uniform transmission of monetary policyactions. We argue that many aspects of financial structure are endogenous to themonetary policy regime in place. It is shown that capital market structures areheavily correlated with past inflation and inflation uncertainty.Since the EURO regime imposes a unified monetary policy, we suspect that thedifferences will wither. A single currency, a single money market rate and a uniformreserve requirement will rapidly harmonize the money markets. In sum, wepredict that differential responses in the transmission of monetary policy actionsthrough the money and capital markets are of minor concern for theECB.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 99-021/2.

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Date of creation: 19 Mar 1999
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Handle: RePEc:dgr:uvatin:19990021

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Cited by:
  1. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
  2. Clausen, Volker & Hayo, Bernd, 2002. "Asymmetric monetary policy effects in EMU," ZEI Working Papers B 04-2002, ZEI - Center for European Integration Studies, University of Bonn.
  3. Nikolay Hristov & Oliver Hülsewig & Timo Wollmershäuser, 2010. "Financial Frictions and Inflation Differentials in a Monetary Union," CESifo Working Paper Series 3235, CESifo Group Munich.
  4. Benoît Mojon, 2001. "Structures financières et canal des taux d’intérêt de la politique monétaire dans la zone euro," Économie et Prévision, Programme National Persée, vol. 147(1), pages 89-115.
  5. Ingo Fender, 2000. "Corporate hedging: the impact of financial derivatives on the broad credit channel of monetary policy," BIS Working Papers 94, Bank for International Settlements.
  6. Claudia M. Buch, 2001. "Financial Market Integration in a Monetary Union," Kiel Working Papers 1062, Kiel Institute for the World Economy.
  7. Ivo J.M. Arnold, 2013. "The industry effects of monetary policy and their welfare implications," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(214), pages 287-315.

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