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Towards an explanation of cross-country asymmetries in monetary transmission

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  • Georgiadis, Georgios

Abstract

I quantify the importance of financial structure, labor market rigidities and industry mix for cross-country asymmetries in monetary transmission. To do so, I determine how closely the impulse responses to a monetary policy shock obtained from country-specific vectorautoregressive (VAR) models and a non-standard panel VAR model match. In the country-specific VAR models, the impulse responses vary across countries in an unrestricted fashion. In the panel VAR model, the impulse responses also vary across countries, but only to the extent that countries differ regarding their financial structure, labor market rigidities and industry mix. For a sample of 20 industrialized countries over the time period from 1995 to 2009, I find that up to 70% (50%) of the cross-country asymmetries in the responses of output (prices) to a monetary policy shock can be accounted for by crosscountry differences in financial structure, labor market rigidities and industry mix. While in the short run asymmetries in the output responses arise mainly due to cross-country differences in industry mix, in the medium and long run differences in financial structure and labor market rigidities gain more importance. Moreover, cross-country differences in industry mix appear to be of rather minor importance for cross-country asymmetries in the transmission of monetary policy to prices. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 07/2012.

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Date of creation: 2012
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Handle: RePEc:zbw:bubdps:072012

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Keywords: Monetary Transmission; Financial Structure; Labor Market Rigidities; Industry Mix; Panel VAR; Heterogeneity;

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Cited by:
  1. Zsolt Darvas, 2009. "Monetary Transmission in Three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0913, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Alfred A.Haug & Tomasz Jędrzejowicz & Anna Sznajderska, 2013. "Combining monetary and fiscal policy in an SVAR for a small open economy," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 168, National Bank of Poland, Economic Institute.
  3. Jakub Mateju, 2013. "Explaining the Strength and the Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2013/18, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2013.
  4. Antonio Ribba & Antonella Cavallo, 2014. "Common Macroeconomic Shocks and Business Cycle Fluctuations in Euro Area Countries," EcoMod2014 6739, EcoMod.
  5. Cécile Couharde & Rémi Generoso, 2014. "The ambiguous role of remittances in West African countries facing climate variability," EconomiX Working Papers 2014-37, University of Paris West - Nanterre la Défense, EconomiX.
  6. Georgiadis, Georgios, 2012. "Towards an explanation of cross-country asymmetries in monetary transmission," Discussion Papers 07/2012, Deutsche Bundesbank, Research Centre.
  7. Georgiadis, Georgios, 2012. "The panel conditionally homogenous vectorautoregressive model," MPRA Paper 37755, University Library of Munich, Germany.

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