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Asymmetric Transmission of Monetary Policy in Europe: a Markov-switching Approach


  • W. Hendricks, Torben

    () (University of Duisburg-Essen)

  • Kempa, Bernd

    () (European University Viadrina)


This paper addresses the question of whether the common monetary policy of the European Central Bank is transmitted asymmetrically within the Euro area. To this end, we employ a Markov switching model to identify a credit channel of monetary policy transmission and investigate whether the credit channel is active or passive across four Euro-area countries (France, Germany, Italy and the Netherlands) as well as the United Kingdom at any given point in time. We find the timing and the duration of the regime switches into and out of the credit channel regime to be fairly synchronous for France, Germany and Italy, while being more heterogeneous for both the Netherlands and the United Kingdom. The asymmetry of the credit channel documented in this paper suggests that the heterogeneity of the monetary transmission mechanism is still very much present in the Euro area. This heterogeneity poses serious policy problems for the European Central Bank (ECB), as monetary policy continues to exert differential impacts across individual member countries of the monetary union. Also, it constitutes a convincing reason of why the ECB, the European Commission and a number of national governments actively push for further liberalization of financial markets in Europe.

Suggested Citation

  • W. Hendricks, Torben & Kempa, Bernd, 2008. "Asymmetric Transmission of Monetary Policy in Europe: a Markov-switching Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 873-895.
  • Handle: RePEc:ris:integr:0457

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    1. repec:ura:ecregj:v:1:y:2017:i:2:p:616-627 is not listed on IDEAS

    More about this item


    European monetary union; credit channel; Markov switching; monetary policy; asymmetric transmission;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission


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