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Monetary policy transmission in the Euro area: what do aggregate and national structural models tell us?

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Author Info
Julian Benedict Morgan () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Alberto Locarno () (Bank of Italy, Via Nazionale 91, 00184 Rome, Italy.)
Jean-Pierre Villetelle () (Banque de France, 39, rue Croix-des-Petits-Champs, F-75049 Paris Cedex 01, France.)
Peter van Els () (Bank of the Netherlands - General, P.O. Box 98, 1000 AB Amsterdam, The Netherlands.)

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Abstract

This paper analyses the monetary transmission mechanism in the euro area through the use of large scale macroeconomic models at the disposal of the European Central Bank and the National Central Banks of the Eurosystem. The results reported are based on a carefully designed common simulation experiment involving a 100 basis point rise in the policy interest rate for two years accompanied by common assumptions regarding the path of long-term interest rates and the exchange rate. Aggregating the country level results, the fall in output is found to reach a maximum of 0.4% after 2 years. The maximum aggregate fall in prices is also 0.4%, but it occurs 2 years later. The dominant channel of transmission in the first two years is the exchange rate channel, but in terms of the impact on output, the user cost of capital channel becomes dominant from the third year of the simulation onwards. JEL Classification: C50; E17; E5.

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Paper provided by European Central Bank in its series Working Paper Series with number 094.

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Length: 76 pages
Date of creation: Dec 2001
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Handle: RePEc:ecb:ecbwps:20010094

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Related research
Keywords: Monetary policy transmission mechanism; macroeconomic models.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olivier Basdevant & David Hargreaves, 2003. "Modelling structural change: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/03, Reserve Bank of New Zealand. [Downloadable!]
  2. Martins Bitans & Dainis Stikuts & Ivars Tillers, 2003. "Transmission of Monetary Shocks in Latvia," Working Papers 2003/01, Latvijas Banka. [Downloadable!]
  3. Balazs Vonnak, 2008. "The Hungarian monetary transmission mechanism: an assessment," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 235-257 Bank for International Settlements. [Downloadable!]
  4. Baghli, M. & Brunhes-Lesage, V. & De bandt, O. & Fraisse, H. & Villetelle, J-P., 2004. "MASCOTTE: Model for AnalySing and foreCasting shOrT TErm developments," Documents de Travail 106, Banque de France. [Downloadable!]
  5. Patrick Lünnemann & Abdelaziz Rouabah, 2003. "Règle de Taylor: estimation et interprétation pour la zone euro et pour le Luxembourg," BCL working papers 9, Central Bank of Luxembourg. [Downloadable!]
  6. Balázs Vonnák, 2007. "The Hungarian Monetary Transmission Mechanism: an Assessment," MNB Working Papers 2007/3, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  7. Francesco Carlucci & Alessandro Girardi, 2004. "National Specifities And Monetarypolicy Transmission In Europe," Working Papers 73, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  8. Cornel Oros, 2008. "Macroeconomic stabilization in a heterogeneous monetary union: some insights into the effects of fiscal policy coordination," Economics Bulletin, Economics Bulletin, vol. 5(34), pages 1-12. [Downloadable!]
  9. N. Valckx, 2001. "Stock and Bond Market Sensitivities to Monetary Variables," WO Research Memoranda (discontinued) 680, Netherlands Central Bank, Research Department. [Downloadable!]
  10. André Minella & Nelson F. Souza-Sobrinho, 2009. "Monetary Channels in Brazil through the Lens of a Semi-Structural Model," Working Papers Series 181, Central Bank of Brazil, Research Department. [Downloadable!]
  11. I. Arnold & P.J.A. van Els & J. de Haan, 2002. "Wealth Effects and Monetary Policy," WO Research Memoranda (discontinued) 719, Netherlands Central Bank, Research Department. [Downloadable!]
  12. Philip Arestis & Malcolm Sawyer, 2002. "Can Monetary Policy Affect The Real Economy?," Economics Working Paper Archive 355, Levy Economics Institute, The. [Downloadable!]
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  13. Philip Arestis, Malcolm Sawyer, 2003. "Inflation Targeting: A Critical Appraisal," Economics Working Paper Archive 388, Levy Economics Institute, The. [Downloadable!]
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  14. Vetlov, Igor, 2004. "The Lithuanian block of the ESCB multi-country model," BOFIT Discussion Papers 13/2004, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  15. Robert-Paul Berben & Alberto Locarno & Julian Morgan & Javier Valles, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 400, European Central Bank. [Downloadable!]
    Other versions:
  16. Laurent Clerk & Christian Pfister, 2003. "The role of financial factors in the transmission of monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 192-212 Bank for International Settlements. [Downloadable!]
  17. Paolo Angelini, 2002. "Liquidity and Announcement Effects in the Euro Area," Temi di discussione (Economic working papers) 451, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  18. Ignazio Angeloni & Michael Ehrmann, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series 240, European Central Bank. [Downloadable!]
  19. Philip Arestis, Malcolm Sawyer, . "Can Monetary Policy Affect the Real Economy? The Dubious Effectiveness of Interest Rate Policy," Economics Public Policy Brief Archive 71, Levy Economics Institute, The. [Downloadable!]
  20. Matteo Ciccarelli & Elena Angelini & Frédéric Boissay, 2006. "The Dutch block of the ESCB multi-country model," Working Paper Series 646, European Central Bank. [Downloadable!]
  21. Robert-Paul Berben & Ricardo Mestre & Julian Morgan & Theodoros Mitrakos & Nikolaos G. Zonzilos, 2005. "Inflation persistence in structural macroeconomic models (RG10)," Working Paper Series 521, European Central Bank. [Downloadable!]
  22. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers) 454, Bank of Italy, Economic Research Department. [Downloadable!]
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