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Are the effects of monetary policy in the euro area greater in recessions than in booms?

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Abstract

This paper investigates whether monetary policy impulses have asymmetric effects on output growth in seven countries of the euro area (Germany, France, Italy, Spain, Austria, Belgium and the Netherlands). First, it is shown that these seven countries share the same business cycle. Next, strong evidence is presented that area-wide monetary policy impulses, measured as the contribution of monetary policy shocks to the short-term interest rate in a simple VAR for the euro area economy, have significantly larger effects on output growth in recessions than in booms. These differences are most pronounced in Germany, France, Italy, Spain, and Belgium while they are much smaller in Austria and the Netherlands. JEL Classification: E4; E5.

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File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp052.pdf
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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 052.

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Length: 30 pages
Date of creation: Mar 2001
Date of revision:
Handle: RePEc:ecb:ecbwps:20010052

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Related research

Keywords: Monetary transmission mechanism; euro area.;

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References

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  1. Garcia, R. & Schaller, H., 1995. "Are the Effects of Monetary Policy Asymmetric?," Cahiers de recherche 9505, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Artis, M. & Krolzig, H.-M. & Toro, J., 1999. "The European Business Cycle," Economics Working Papers eco99/24, European University Institute.
  3. Hamilton, James D & Perez-Quiros, Gabriel, 1996. "What Do the Leading Indicators Lead?," The Journal of Business, University of Chicago Press, vol. 69(1), pages 27-49, January.
  4. Kakes, Jan, 1998. "Monetary transmission and business cycle asymmetry," Research Report 98C36, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  5. Gert Peersam & Frank Smets, 2002. "The industry effects of monetary policy in the Euro area," Working Paper Series 165, European Central Bank.
  6. Frank Smets & Gert Peersman, 2001. "The monetary transmission mechanism in the Euro area: more evidence from VAR analysis (MTN conference paper)," Working Paper Series 091, European Central Bank.
  7. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  8. Ball, L. & Mankiw, N.G., 1992. "Asymmetric Price Adjustment and Economic Fluctuations," Harvard Institute of Economic Research Working Papers 1602, Harvard - Institute of Economic Research.
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