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Differences in monetary policy transmission? A case not closed

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  • Mads Kieler
  • Tuomas Saarenheimo
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    Abstract

    The advent of EMU inspired a large literature searching for differences in the monetary policy transmission among European countries. Stylised facts seemed to arise, classifying the countries as having either rapid or slow transmission. Our paper takes a comprehensive look at the existing empirical results, and finds few recurrent features supporting the presumed stylised facts. The econometric part examines the difficulties of meaningful identification of a monetary shock. The paper proposes a general approach to reducing the identification space through economic restrictions. We conclude that uncertainties in macro-econometric analysis are too large to allow establishing any statistically significant differences.

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    File URL: http://ec.europa.eu/economy_finance/publications/publication11189_en.pdf
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    Bibliographic Info

    Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 132.

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    Length: 44 pages
    Date of creation: Nov 1998
    Date of revision:
    Handle: RePEc:euf:ecopap:0132

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    Keywords: monetary policy; emu;

    References

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    1. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    2. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," International Finance Discussion Papers 462, Board of Governors of the Federal Reserve System (U.S.).
    3. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
    4. Fank Smets, 1997. "Measuring Monetary Policy Shocks in France, Germany and Italy: The Role of The Exchange Rate," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(III), pages 597-616, September.
    5. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    6. John B. Taylor, 1995. "The monetary transmission mechanism: an empirical framework," Working Papers in Applied Economic Theory 95-07, Federal Reserve Bank of San Francisco.
    7. Ramana Ramaswamy & Torsten Sløk, 1998. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 374-396, June.
    8. Davis, E Philip, 1994. "Banking, Corporate Finance, and Monetary Policy: An Empirical Perspective," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 49-67, Winter.
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    Citations

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    Cited by:
    1. Georgiadis, Georgios, 2012. "Towards an explanation of cross-country asymmetries in monetary transmission," Discussion Papers 07/2012, Deutsche Bundesbank, Research Centre.
    2. Jarociński, Marek, 2008. "Responses to monetary policy shocks in the east and the west of Europe: a comparison," Working Paper Series 0970, European Central Bank.
    3. Mojon, Benoît & Smets, Frank & Vermeulen, Philip, 2001. "Investment and monetary policy in the euro area," Working Paper Series 0078, European Central Bank.
    4. Ivo J.M. Arnold, 2013. "The industry effects of monetary policy and their welfare implications," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(214), pages 287-315.
    5. Stephen G. Cecchetti, 1999. "Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism," NBER Working Papers 7151, National Bureau of Economic Research, Inc.
    6. G. Peersman, 2004. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/235, Ghent University, Faculty of Economics and Business Administration.
    7. Marc-Alexandre Sénégas, 2002. "La politique monétaire face à l'incertitude : un survol méthodologique des contributions relatives à la zone euro," Revue d'Économie Financière, Programme National Persée, vol. 65(1), pages 177-200.
    8. Pelinescu, Elena, 2012. "Transmission Mechanism of Monetary Policy in Romania. Insights into the Economic Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-21, September.
    9. repec:onb:oenbwp:y::i:124:b:1 is not listed on IDEAS
    10. Adam Elbourne & Jakob de Haan, 2004. "Asymmetric Monetary Transmission in EMU: The Robustness of VAR Conclusions and Cecchetti’s Legal Family Theory," CESifo Working Paper Series 1327, CESifo Group Munich.
    11. Favero, Carlo A & Flabbi, Luca & Giavazzi, Francesco, 1999. "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," CEPR Discussion Papers 2303, C.E.P.R. Discussion Papers.
    12. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Vanderbilt University Department of Economics Working Papers 0128, Vanderbilt University Department of Economics.

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