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Monetary Policy Effects: New Evidence from the Italian Flow of Funds

  • Riccardo Bonci

    ()

    (Bank of Italy, Economic and Financial Statistics Department)

  • Francesco Columba

    ()

    (Bank of Italy, Economic Outlook and Monetary Policy Department)

We obtain new evidence on the transmission of monetary policy to the economy by analyzing the effects of restrictive monetary policy shocks on Italian flows of funds over the period 1980-2002. Firms reduce their issuance of debt and their acquisitions of financial assets, so there is no evidence of strong financial frictions. Households increase short-term liabilities and diminish purchases of liquid assets and shares in the first quarter following a shock. The public sector increases net borrowing during the first two years. Financial corporations decrease their borrowing for three quarters, while the foreign sector increases borrowed funds. The results shed new light on the role played by the financial decisions of the various economic sectors in the transmission of monetary policy.

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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 678.

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Date of creation: Jun 2008
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Handle: RePEc:bdi:wptemi:td_678_08
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