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Towards an explanation of cross-country asymmetries in monetary transmission

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  • Georgiadis, Georgios

Abstract

This paper quantifies the importance of financial structure, labor market rigidities and industry mix for the monetary transmission mechanism. 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 replicated by accounting for cross-country differences in financial structure, labor market rigidities and industry mix. Moreover, while in the short run asymmetries in the output responses arise mainly due to cross-country differences in industry mix, in the medium run differences in financial structure and labor market rigidities are more important. Finally, 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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  • Georgiadis, Georgios, 2014. "Towards an explanation of cross-country asymmetries in monetary transmission," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 66-84.
  • Handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:66-84
    DOI: 10.1016/j.jmacro.2013.10.003
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    Cited by:

    1. Georgiadis, Georgios, 2016. "Determinants of global spillovers from US monetary policy," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 41-61.
    2. McCredie, Bronwyn & Docherty, Paul & Easton, Steve & Uylangco, Katherine, 2016. "The channels of monetary policy triggered by central bank actions and statements in the Australian equity market," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 46-61.
    3. Georgiadis, Georgios, 2015. "Examining asymmetries in the transmission of monetary policy in the euro area: Evidence from a mixed cross-section global VAR model," European Economic Review, Elsevier, vol. 75(C), pages 195-215.
    4. Cavallo, Antonella & Ribba, Antonio, 2015. "Common macroeconomic shocks and business cycle fluctuations in Euro area countries," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 377-392.
    5. Couharde, Cécile & Generoso, Rémi, 2015. "The ambiguous role of remittances in West African countries facing climate variability," Environment and Development Economics, Cambridge University Press, vol. 20(04), pages 493-515, August.
    6. Binder, Michael & Offermanns, Christian J., 2014. "Globalization and international business cycle dynamics: A conditional GVAR approach," Discussion Papers 2014/24, Free University Berlin, School of Business & Economics.
    7. repec:bfr:rueban:2017:48 is not listed on IDEAS
    8. Jannsen, Nils & Potjagailo, Galina & Wolters, Maik H., 2015. "Monetary policy during financial crises: Is the transmission mechanism impaired?," Kiel Working Papers 2005, Kiel Institute for the World Economy (IfW).
    9. Alfred A.Haug & Tomasz Jędrzejowicz & Anna Sznajderska, 2013. "Combining monetary and fiscal policy in an SVAR for a small open economy," NBP Working Papers 168, Narodowy Bank Polski, Economic Research Department.
    10. 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 2013/18, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2013.
    11. Julius Stakenas & Rasa Stasiukynaite, 2016. "Monetary policy transmission: the case of Lithuania," Bank of Lithuania Working Paper Series 24, Bank of Lithuania.
    12. Zsolt Darvas, 2013. "Monetary transmission in three central European economies: evidence from time-varying coefficient vector autoregressions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(2), pages 363-390, May.
    13. Georgiadis, Georgios & Mehl, Arnaud, 2016. "Financial globalisation and monetary policy effectiveness," Journal of International Economics, Elsevier, vol. 103(C), pages 200-212.
    14. Georgiadis, Georgios, 2014. "Towards an explanation of cross-country asymmetries in monetary transmission," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 66-84.
    15. Barrot Araya,Luis Diego & Calderon,Cesar & Serven,Luis, 2016. "Openness, specialization, and the external vulnerability of developing countries," Policy Research Working Paper Series 7711, The World Bank.
    16. Jakub Mateju, 2014. "Explaining the Strength and Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model," Working Papers 2014/04, Czech National Bank, Research Department.
    17. Mohapatra, Sandeep & Adamowicz, Wiktor & Boxall, Peter, 2016. "Dynamic technique and scale effects of economic growth on the environment," Energy Economics, Elsevier, vol. 57(C), pages 256-264.
    18. Georgiadis, Georgios, 2012. "The panel conditionally homogenous vectorautoregressive model," MPRA Paper 37755, University Library of Munich, Germany.
    19. Klodiana Istrefi & Sarah Mouabbi, 2017. "Subjective interest rate uncertainty and the macroeconomy : a cross-country analysis," Rue de la Banque, Banque de France, issue 48, september.

    More about this item

    Keywords

    Monetary transmission; Financial structure; Labor market rigidities; Industry mix; Panel VAR; Heterogeneity;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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