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Monetary policy shocks in the euro area and global liquidity spillovers

  • Joao Sousa

    (Banco de Portugal, Research Department, Portugal)

  • Andrea Zaghini

    (Banca d'Italia, Research Department, Italy)

We analyse the international transmission of monetary shocks with a focus on the effects of foreign liquidity on the euro area. We estimate two domestic structural VAR models for the euro area and then we introduce a global liquidity aggregate. The impulse responses show that a positive shock to foreign liquidity leads to permanent increases in the euro area M3 aggregate and the price level, a temporary rise in real output and a temporary appreciation of the euro real effective exchange rate. Moreover, we find that innovations in global liquidity play an important role in explaining price and output fluctuations. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.320
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 13 (2008)
Issue (Month): 3 ()
Pages: 205-218

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Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:3:p:205-218
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