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Monetary transmission in the Euro Area: where do we stand?

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Author Info
Ignazio Angeloni () (European Central Bank (ECB), Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Benoit Mojon () (European Central Bank (ECB), Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Anil K. Kashyap () (University of Chicago - Graduate School of Business, Chicago , IL 60637, United States.)
Daniele Terlizzese () (Banca d'Italia, Via Nazionale 91, 00184 Rome, Italy.)

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Abstract

Drawing on recent Eurosystem research that uses a range of econometric techniques and a number of new data sets, we propose a comprehensive description of how monetary policy affects the euro area economy. We focus mainly on three questions: (1) what are the stylised facts concerning the transmission of monetary policy for the area as a whole and for individual countries? (2) can the "classic" interest rate channel (IRC) alone, without capital market imperfections, explain these facts? (3) if not, is the bank lending channel a likely candidate to complete the story? We find plausible euro-area wide monetary policy responses for prices and output that are similar to those generally reported for the US. However, investment (relative to consumption) seems to play a larger role in euro area monetary policy transmission than in the US. We cannot reject the hypothesis that the IRC completely characterises transmission in a few countries, and estimate it to be substantial in almost all. Where the IRC is not dominant, there is normally some direct evidence supporting the presence of a bank lending channel (or other financial transmission channel). The cases where financial effects appear important can be further split according to whether they primarily relate to consumption or investment. JEL Classification: E52; E58; E44.

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Paper provided by European Central Bank in its series Working Paper Series with number 114.

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Length: 72 pages
Date of creation: Jan 2002
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Handle: RePEc:ecb:ecbwps:20020114

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Keywords: Monetary policy transmission mechanism euro area bank lending.

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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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