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Risk sharing and monetary policy transmission

Author

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  • Hauptmeier, Sebastian
  • Holm-Hadulla, Fédéric
  • Renault, Théodore

Abstract

Using regionally disaggregated data on economic activity, we show that risk sharing plays a key role in shaping the real effects of monetary policy. With weak risk sharing, monetary policy shocks trigger a strong and durable response in output. With strong risk sharing, the response is attenuated, and output reverts to its initial level over the medium term. The attenuating impact of risk sharing via credit and factor markets concentrates over a two-year horizon, whereas fiscal risk sharing operates over longer horizons. Fiscal risk sharing especially benefits poorer regions by shielding them against persistent output contractions after tightening shocks. JEL Classification: C32, E32, E52

Suggested Citation

  • Hauptmeier, Sebastian & Holm-Hadulla, Fédéric & Renault, Théodore, 2022. "Risk sharing and monetary policy transmission," Working Paper Series 2746, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222746
    Note: 538998
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2746~3b413f2921.en.pdf
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    2. Cimadomo, Jacopo & Giuliodori, Massimo & Lengyel, Andras & Mumtaz, Haroon, 2023. "Changing patterns of risk-sharing channels in the United States and the euro area," Working Paper Series 2849, European Central Bank.

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    More about this item

    Keywords

    local projections; monetary policy; quantile regressions; regional heterogeneity; risk sharing;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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