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Money and monetary policy transmission in the euro area: evidence from FAVAR- and VAR approaches

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Author Info
Blaes, Barno
Abstract

This paper investigates the transmission of monetary policy in the euro area based on the factor augmented vector autoregressive approach of Bernanke, Boivin and Eliasz (2005) as well as on a standard VAR model. We focus on the reaction of monetary aggregates to a one-off monetary policy shock. We find that - as theory suggests - money growth is dampened by a restrictive monetary policy stance in the longer term. In the short-run, however, M3 growth may increase due to portfolio shifts caused by the rise in the short-term interest rate. This has consequences for the interpretation of money growth as an input for monetary policy decisions. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2009,18.

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Date of creation: 2009
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Handle: RePEc:zbw:bubdp1:200918

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Related research
Keywords: Monetary policy transmission; FAVAR; VAR; money stock; euro area.;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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This page was last updated on 2009-12-2.

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