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Will a Common European Monetary Policy Have Asymmetric Effects?

Listed author(s):
  • Luigi Guiso

    (Universit� di Sassari and Ente Einaudi)

  • Anil K. Kashyap

    (University of Chicago and NBER)

  • Fabio Panetta


    (Bank of Italy, Economic Research Department)

  • Daniele Terlizzese

    (Bank of Italy, Economic Research Department)

We survey the existing work on the cross-country differences in the transmission of European monetary policy. We find that prior work, focusing on macroeconomic data, does not clearly answer the question posed in the title and offer some explanations for the ambiguity. Aside from the inappropriate design of the prior empirical exercises, we point to the need to use microeconomic data to disentangle the potentially confounding effects of differences in the behavior of agents in different countries and the composition of agents across countries. We review the leading theories of monetary non-neutrality to find the structural features of the economy that in principle could alter the transmission mechanism. We provide some evidence that these structural features do differ markedly among the major European economies. We then explore the potential importance of these structural factors drawing on firm-level data from one country, Italy, and we show how the business cycle has differentially affected firms in Italy over the last decade. It appears that the 1992 monetary tightening and 1993 recession were not uniformly felt by Italian firms, but differed along the lines suggested by several of the theories. Several of the dimensions which appear to be important in the Italian experience are dimensions which vary noticeably across European countries, suggesting that further work on firm-level comparisons in other European countries may be valuable.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 384.

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Date of creation: Oct 2000
Handle: RePEc:bdi:wptemi:td_384_00
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  1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  2. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1991. "Why is Italy's Savings Rate So High?," CEPR Discussion Papers 572, C.E.P.R. Discussion Papers.
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