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Monetary policy transmission in the euro area: what do aggregate and national structural models tell us?

Author

Listed:
  • Peter van Els

    (De Nederlandsche Bank)

  • Alberto Locarno

    () (Banca d�Italia, Economic Research Department)

  • Julian Morgan

    (European Central Bank)

  • Jean-Pierre Villetelle

    (Banque de France)

Abstract

This paper analyses the monetary transmission mechanism in the euro area through the use of large scale macroeconomic models at the disposal of the European Central Bank and the National Central Banks of the Eurosystem. The results reported are based on a carefully designed common simulation experiment involving a 100 basis point rise in the policy interest rate for two years accompanied by common assumptions regarding the path of longterm interest rates and the exchange rate. Aggregating the country level results, the fall in output is found to reach a maximum of 0.4 per cent after 2 years. The maximum aggregate fall in prices is also 0.4 per cent, but it occurs 2 years later. The dominant channel of transmission in the first two years is the exchange rate channel, but in terms of the impact on output, the user cost of capital channel becomes dominant from the third year of the simulation onwards.

Suggested Citation

  • Peter van Els & Alberto Locarno & Julian Morgan & Jean-Pierre Villetelle, 2001. "Monetary policy transmission in the euro area: what do aggregate and national structural models tell us?," Temi di discussione (Economic working papers) 433, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_433_01
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    References listed on IDEAS

    as
    1. Fromm, Gary & Klein, Lawrence R, 1973. "A Comparison of Eleven Econometric Models of the United States," American Economic Review, American Economic Association, vol. 63(2), pages 385-393, May.
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    11. McAdam, Peter & Morgan, Julian, 2001. "The monetary transmission mechanism at the euro-area level: issues and results using structural macroeconomic models," Working Paper Series 93, European Central Bank.
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    More about this item

    Keywords

    monetary policy transmission mechanism; macroeconomic models;

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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