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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.

Suggested Citation

  • Joao Sousa & Andrea Zaghini, 2008. "Monetary policy shocks in the euro area and global liquidity spillovers," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 205-218.
  • Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:3:p:205-218 DOI: 10.1002/ijfe.320

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    References listed on IDEAS

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F01 - International Economics - - General - - - Global Outlook


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