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Monetary policy effects: new evidence from the Italian flow-of-funds

New evidence on the transmission of monetary policy to the economy is provided through an analysis of the effects of a restrictive monetary policy shock on Italian flow of funds over the period 1980 to 2002. Firms reduce issuance of debt and decrease the acquisition of financial assets, providing no support for the existence of strong financial frictions. Following the shock, in the first quarter households increase short-tem liabilities and diminish the acquisition of liquid assets and shares. The public sector increases net borrowing during the first 2 years. Financial corporations decrease their borrowing for three quarters while in the same period the foreign sector increases borrowed funds. We claim that our results shed new light on the role of the financial decisions of the economic sectors in the transmission mechanism of monetary policy.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 40 (2008)
Issue (Month): 21 ()
Pages: 2803-2818

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Handle: RePEc:taf:applec:v:40:y:2008:i:21:p:2803-2818
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