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The Transmission Mechanism of European Monetary Policy: Is There Heterogeneity? Is it Changing over Time?

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  • Matteo Ciccarelli
  • Alessandro Rebucci

Abstract

This paper investigates the transmission mechanism of monetary policy in the four largest euro area countries by means Bayesian estimation of dynamic econometric models. Based on pre-EMU evidence from Germany, France, Italy, and Spain, we show that: (i) there are differences in the timing of the effects of monetary policy on economic activity, but their cumulative impact after two years is rather homogeneous; (ii) the transmission mechanism seems to have changed over time in the run-up to EMU but its degree of heterogeneity has not decreased; (iii) the 'European-wide' effects of monetary policy may have become faster in the second half of the 1990s. We interpret this evidence by conjecturing that the transmission mechanism of monetary policy had already become relatively homogenous in the second part of the 1990s.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/54.

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Length: 44
Date of creation: 01 Mar 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/54

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  1. Ramana Ramaswamy & Torsten Sløk, 1997. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Working Papers 97/160, International Monetary Fund.
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  8. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
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  12. Matteo Ciccarelli, 2001. "Testing Restrictions In Normal Data Models Using Gibbs Sampling," Working Papers. Serie AD 2001-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  14. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Wiley Blackwell, vol. 2(1), pages 85-116, April.
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  16. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1833, Econometric Society.
  17. Eva Ortega & Enrique Alberola, 2000. "Transmission of Shocks and Monetary Policy in the Euro Area. An Exercise With NiGEM," Banco de España Working Papers 0010, Banco de España.
  18. Chib, Siddhartha & Greenberg, Edward, 1995. "Hierarchical analysis of SUR models with extensions to correlated serial errors and time-varying parameter models," Journal of Econometrics, Elsevier, vol. 68(2), pages 339-360, August.
  19. Frank Smets & Gert Peersman, 2001. "Are the effects of monetary policy in the euro area greater in recessions than in booms?," Working Paper Series 052, European Central Bank.
  20. Andrew Hughes Hallett & Laura Piscitelli, 2002. "Does One Size Fit All? A currency union with asymmetric transmissions and a stability pact," International Review of Applied Economics, Taylor and Francis Journals, vol. 16(1), pages 71-96.
  21. Zha, Tao, 1999. "Block recursion and structural vector autoregressions," Journal of Econometrics, Elsevier, vol. 90(2), pages 291-316, June.
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