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Monetary Policy Shocks in the Euro Area and Global Liquidity Spillovers

Author

Listed:
  • Joao Sousa

    (Banco de Portugal)

  • Andrea Zaghini

    (Banca d�Italia)

Abstract

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.

Suggested Citation

  • Joao Sousa & Andrea Zaghini, 2007. "Monetary Policy Shocks in the Euro Area and Global Liquidity Spillovers," Temi di discussione (Economic working papers) 629, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_629_07
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy; Structural VAR; International spillovers;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F01 - International Economics - - General - - - Global Outlook

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