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Monetary transmission mechanism and time variation in the Euro area

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  • Kemal Bagzibagli

Abstract

This paper examines the monetary transmission mechanism in the Euro area (EA) for the period of single monetary policy using factor-augmented vector autoregressive (FAVAR) techniques. The aims of the paper are threefold. First, a novel dataset consisting of 120 disaggregated macroeconomic time series spanning the period 1999:M1 through 2011:M12 is gathered for the EA as an aggregate. Second, a Bayesian joint estimation technique of the FAVAR approach is applied to the European data in order to investigate the impacts of monetary policy shocks on the economy. Third, time variation in the transmission mechanism and the impact of the global financial crisis are investigated in the FAVAR context using a rolling windows technique. We find that there are considerable gains from the implementation of the Bayesian technique such as smoother impulse response functions and statistical significance of the estimates. According to our rolling estimations, consumer prices and monetary aggregates display the most time-variant responses to the monetary policy shocks in the EA. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Kemal Bagzibagli, 2014. "Monetary transmission mechanism and time variation in the Euro area," Empirical Economics, Springer, vol. 47(3), pages 781-823, November.
  • Handle: RePEc:spr:empeco:v:47:y:2014:i:3:p:781-823
    DOI: 10.1007/s00181-013-0768-4
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    Cited by:

    1. Olli-Matti Juhani Laine, 2020. "The effect of the ECB’s conventional monetary policy on the real economy: FAVAR-approach," Empirical Economics, Springer, vol. 59(6), pages 2899-2924, December.
    2. Serati, Massimiliano & Venegoni, Andrea, 2019. "The cross-country impact of ECB policies: Asymmetries in – Asymmetries out?," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 118-141.
    3. Olli-Matti Juhani Laine, 0. "The effect of the ECB’s conventional monetary policy on the real economy: FAVAR-approach," Empirical Economics, Springer, vol. 0, pages 1-26.
    4. Anastasios Evgenidis & Dionisis Philippas & Costas Siriopoulos, 2019. "Heterogeneous effects in the international transmission of the US monetary policy: a factor-augmented VAR perspective," Empirical Economics, Springer, vol. 56(5), pages 1549-1579, May.

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    More about this item

    Keywords

    Monetary policy shocks; FAVAR; Bayesian methods ; Rolling windows; Euro area; C11; C32; C33; E5;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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