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The Bernanke and Blinder Model in an Open Economy: The Italian Case

  • Paolo Chiades
  • Leonardo Gambacorta

This paper analyzes the functioning of monetary policy transmission mechanisms in Italy from 1984 to 1998, highlighting the role performed by the credit system. We extend the Bernanke and Blinder model (1988) to the case of an open economy under a quasi-fixed exchange rate regime, deriving analytically the conditions for the functioning of the three monetary policy channels generally identified in the literature ('money', 'exchange rate' and 'credit'). These conditions explain the partial effectiveness of monetary policy in achieving price and income targets, while maintaining external equilibrium. By means of a structural VECM analysis, we evaluate the effectiveness of the transmission of monetary policy through the three channels. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2004.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 5 (2004)
Issue (Month): 1 (02)
Pages: 1-34

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Handle: RePEc:bla:germec:v:5:y:2004:i:1:p:1-34
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  11. Davidson, James, 1998. "Structural relations, cointegration and identification: some simple results and their application," Journal of Econometrics, Elsevier, vol. 87(1), pages 87-113, August.
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  15. Giuseppe De Arcangelis & Giorgio Di Giorgio, 1999. "Monetary policy shocks and transmission in Italy: A VAR analysis," Economics Working Papers 446, Department of Economics and Business, Universitat Pompeu Fabra.
  16. Virginie Coudert & Benoît Mojon, 1995. "Transmission de la politique monétaire et crédit bancaire," La Lettre du CEPII, CEPII research center, issue 132.
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  21. Spencer Dale & Andrew Haldane, 1993. "Interest rates and the channels of monetary transmission: some sectoral estimates," Bank of England working papers 18, Bank of England.
  22. Bertocco Giancarlo, 1997. "Il governo della moneta e del credito in Italia. Un'analisi del meccanismo di trasmissione della politica monetaria nel periodo 1960-95," Politica economica - Journal of Economic Policy (PEJEP), Società editrice il Mulino, issue 3, pages 309-344.
  23. Dale, Spencer & Haldane, Andrew G, 1998. "Interest Rate Control in a Model of Monetary Policy," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(3), pages 354-75, June.
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  26. 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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