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Monetary Policy Shocks in the Euro Area and Global Liquidity Spillovers

  • Joao Sousa

    ()

    (Banco de Portugal)

  • Andrea Zaghini

    ()

    (Banca d�Italia)

We analyse the international transmission of monetary policy shocks with a focus on the effects of foreign liquidity on the euro area. We estimate two domestic structural VAR models for the euro area and then we introduce a global liquidity aggregate. The impulse responses show that a positive shock to foreign liquidity leads for the euro area to a permanent increases in M3 and in the price level, a temporary rise in real output and a temporary appreciation of the euro real effective exchange rate. Moreover, we find that innovations in global liquidity play an important role in explaining price and output fluctuations.

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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 629.

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Date of creation: Jun 2007
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Handle: RePEc:bdi:wptemi:td_629_07
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