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Firm Size, Industry Mix and the Regional Transmission of Monetary Policy in Germany

  • Ivo J. M. Arnold
  • Evert B. Vrugt

This paper estimates the impact of interest rate shocks on regional output in Germany over the period from 1970 to 2000. We use a vector autoregression (VAR) model to obtain impulse responses, which reveal differences in the output responses to monetary policy shocks across ten German provinces. Next, we investigate whether these differences can be related to structural features of the regional economies, such as industry mix, firm size, bank size and openness. An additional analysis of the volatility of real GDP growth for the period 1992-2000 includes the Eastern provinces. We also present evidence on the interrelationship between firm size and industry, and compare our measure of firm size with those used in previous studies. We conclude that the differential regional effects of monetary policy are related to industrial composition, but not to firm size or bank size. 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: 35-59

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Handle: RePEc:bla:germec:v:5:y:2004:i:1:p:35-59
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  1. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
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  3. Dedola, Luca & Lippi, Francesco, 2000. "The Monetary Transmission Mechanism: Evidence from the Industries of Five OECD Countries," CEPR Discussion Papers 2508, C.E.P.R. Discussion Papers.
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  8. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
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  14. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
  15. Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 58-83, March.
  16. J.M. Arnold, Ivo, 2001. "The Regional Effects of Monetary Policy in Europe," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 399-420.
  17. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
  18. Ivo J. M. Arnold & Evert B. Vrugt, 2002. "Regional Effects of Monetary Policy in the Netherlands," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 123-134, August.
  19. Stilianos Fountas & Agapitos Papagapitos, 1999. "The Monetary Transmission Mechanism: Evidence and Implications for European Monetary Union," Working Papers 35, National University of Ireland Galway, Department of Economics, revised 1999.
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