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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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Author Info
Ignazio Angeloni
Anil K. Kashyap
Benoit Mojon
Daniele Terlizzese

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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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Handle: RePEc:nbr:nberwo:9985

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E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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  1. Ignazio Angeloni & Michael Ehrmann, 2004. "Euro area inflation differentials," Working Paper Series 388, European Central Bank. [Downloadable!]
    Other versions:
  2. Balázs Vonnák, 2007. "The Hungarian Monetary Transmission Mechanism: an Assessment," MNB Working Papers 2007/3, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  3. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  4. Ziaei, Sayyed Mahdi, 2009. "Assess The Long Run Effects Of Monetary Policy On Bank lending,Foreign Asset and Liability In MENA Countries," MPRA Paper 14331, University Library of Munich, Germany. [Downloadable!]
  5. Alessandro Calza & João Sousa, 2005. "Output and inflation responses to credit shocks - are there threshold effects in the euro area?," Working Paper Series 481, European Central Bank. [Downloadable!]
  6. Robert-Paul Berben & Alberto Locarno & Julian Morgan & Javier Valles, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 400, European Central Bank. [Downloadable!]
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  7. André Meier & Gernot J. Müller, 2005. "Fleshing out the monetary transmission mechanism - output composition and the role of financial frictions," Working Paper Series 500, European Central Bank. [Downloadable!]
  8. Romain Duval & Jørgen Elmeskov, 2006. "The effects of EMU on structural reforms in labour and product markets," Working Paper Series 596, European Central Bank. [Downloadable!]
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  9. Jesper Lindé & Marianne Nessén & Ulf Söderström, 2004. "Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through," Working Papers 263, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  10. Alessandro Calza & Tommaso Monacelli & Livio Stracca, 2009. "Housing Finance and Monetary Policy," Working Paper Series 1069, European Central Bank. [Downloadable!]
  11. Virginia Queijo, 2005. "Bayesian Estimation of a DSGE Model with Financial Frictions for the U.S. and the Euro Area," Computing in Economics and Finance 2005 306, Society for Computational Economics. [Downloadable!]
  12. F. De Graeve & O. De Jonghe & R. Vander Vennet, 2004. "Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/261, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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  13. De Fiore, Fiorella & Uhlig, Harald, 2005. "Bank Finance versus Bond Finance: What Explains the Differences Between the US and Europe?," CEPR Discussion Papers 5213, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Queijo, Virginia, 2005. "How Important are Financial Frictions in the U.S. and Euro Area?," Seminar Papers 738, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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