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The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S

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  • Ignazio Angeloni
  • Anil K. Kashyap
  • Benoit Mojon
  • Daniele Terlizzese

Abstract

We revisit recent evidence on how monetary policy affects output and prices in the U.S. and in the euro area. The response patterns to a shift in monetary policy are similar in most respects, but differ noticeably as to the composition of output changes. In the euro area investment is the predominant driver of output changes, while in the U.S. consumption shifts are significantly more important. We dub this difference the output composition puzzle and explore its implications and several potential explanations for it. While the evidence seems to point at differences in consumption responses, rather than investment, as the proximate cause for this fact, the source of the consumption difference remains a puzzle.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9985.

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Date of creation: Sep 2003
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Publication status: published as Angeloni, Ignazio, Anil K. Kashyap, Benoit Mojon and Daniele Terlizzese. "The Output Composition Puzzle: A Difference In The Monetary Transmission Mechanism In The Euro Area And The United States," Journal of Money, Credit and Banking, 2003, v35(6,Dec), 1265-1306.
Handle: RePEc:nbr:nberwo:9985

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  1. The Fed should stop caring about growth
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