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Monetary Transmission Channels, Monetary Regimes and ConsumptionBehaviour

  • S. Sgherri

This paper explores the characteristics of the monetary transmission mechanism in the UK, as portrayed by the National Institute's Domestic Econometric Model (NiDEM). Sensitivity to different monetary policy regimes and to alternative models of consumers' expenditure is assessed. The methodology adopted quantifies not only the total impact of a temporary monetary shock on the main GDP components, but also the contributions of the various transmission channels. Our analysis supports the evidence that the interest sensitivity of consumption becomes significantly lower when consumers 'excessively discount' the future. More interestingly, we note that monetary shocks have relatively large effects on the real economy through their repercussions on fiscal variables; this is more obvious when the exchange rate is fixed and departures from Ricardian equivalence are enhanced.

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File URL: http://www.dnb.nl/binaries/sr053_tcm46-146831.pdf
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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 53.

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Length: 45 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:dnb:staffs:53
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  1. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
  2. Stefan Gerlach & Frank Smets, 1995. "The monetary transmission mechanism: Evidence from the G-7 countries," BIS Working Papers 26, Bank for International Settlements.
  3. Church, Keith B & Smith, Peter N & Wallis, Kenneth F, 1994. "Econometric Evaluation of Consumers' Expenditure Equations," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 71-85, Summer.
  4. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," Economic Journal, Royal Economic Society, vol. 107(445), pages 1701-27, November.
  5. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  6. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
  7. Rudi Dornbusch & Carlo Favero & Francesco Giavazzi, 1998. "Immediate challenges for the European Central Bank," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 15-64, 04.
  8. Wren-Lewis, Simon, et al, 1996. "The Macroeconomic Effects of Fiscal Policy: Linking an Econometric Model with Theory," Economic Journal, Royal Economic Society, vol. 106(436), pages 543-59, May.
  9. Maurice Obstfeld & Kenneth Rogoff, 1995. "The mirage of fixed exchange rates," Working Papers in Applied Economic Theory 95-08, Federal Reserve Bank of San Francisco.
  10. Hamid Faruqee & Douglas Laxton & Steven Symansky, 1997. "Government Debt, Life-Cycle Income, and Liquidity Constraints: Beyond Approximate Ricardian Equivalence," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 374-382, September.
  11. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  12. Hayashi, Fumio, 1982. "The Permanent Income Hypothesis: Estimation and Testing by Instrumental Variables," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 895-916, October.
  13. Julia Darby & Jonathan Ireland, 1994. "Consumption, Forward Looking Behaviour and Financial Deregulation," Working Papers Series 94/5, University of Stirling, Division of Economics.
  14. Dale, Spencer & Haldane, Andrew G., 1995. "Interest rates and the channels of monetary transmission: Some sectoral estimates," European Economic Review, Elsevier, vol. 39(9), pages 1611-1626, December.
  15. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  16. Maclennan, Duncan & Muellbauer, John & Stephens, Mark, 1998. "Asymmetries in Housing and Financial Market Institutions and EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 54-80, Autumn.
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