The transmission of monetary shocks in the euro area: a VAR analysis based on euro-wide data
AbstractUsing area-wide data, we perform a VAR analysis to simulate the responses of inflation and real output following monetary shocks in the EMU. We find that short-term interest rate shocks have a significant impact on real activity, but hardly on prices. M3 shows a perverse short-term response to a monetary contraction, which should be taken into account when interpreting the reference value of money growth (the `first pillar' of the Eurosystem's monetary strategy). Shocks to the effective exchange rate have a rapid impact on prices, money growth and real activity. As the exchange rate itself is hardly affected by monetary policy shocks, though, there is little scope for an exchange rate policy. Rather, these findings underscore the important role that the exchange rate should play as an information variable within the `second pillar' of the monetary strategy. Finally, a comparison with the United States reveals that most impulse-responses are similar.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2000-2.
Date of creation: Jan 2000
Date of revision:
Other versions of this item:
- Jan Kakes & Sitikantha Pattanaik, 2000. "The transmission of monetary shocks in the euro area: a V AR analysis based on euro-wide data," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(213), pages 171-186.
- Jan Kakes & Sitikantha Pattanaik, 2000. "The transmission of monetary shocks in the euro area: a V AR analysis based on euro-wide data," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(213), pages 171-186.
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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