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A VAR description of the effects of monetary policy in the individual countries of the euro area

  • Mojon, Benoît
  • Peersman, Gert

This paper presents a complete set of results describing the effects of monetary policy in 10 countries of the euro area for the pre-EMU period. For each country, we impose one of three identification schemes depending on its monetary integration with Germany, the nominal anchor of the ERM. The first identification scheme applies to Germany, the second to countries of the core EMS (Austria, Belgium and the Netherlands) and the third to all the other countries. An unexpected rise in the short-term interest rate leads to a decrease in GDP, (with investment and exports falling more than consumption) and a gradual decrease in prices for all countries. We also show that, given the width of the error bands around the estimate, we cannot reject that the effects of monetary policy on GDP and on prices are broadly similar in the individual countries of the euro area JEL Classification: E52

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Paper provided by European Central Bank in its series Working Paper Series with number 0092.

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Date of creation: Dec 2001
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Handle: RePEc:ecb:ecbwps:20010092
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  1. Luca Sala, 2002. "Monetary Transmission in the Euro Area: A Factor Model Approach," Macroeconomics 0205005, EconWPA, revised 15 May 2002.
  2. Ilian Mihov, 2001. "Monetary policy implementation and transmission in the European Monetary Union," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 369-406, October.
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  4. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
  5. Soyoung Kim, 1998. "Identifying European Monetary Policy Interactions: French and Spanish System with German Variables," Banco de Espa�a Working Papers 9811, Banco de Espa�a.
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  7. Christina D. Romer & David H. Romer, 1997. "Reducing Inflation: Motivation and Strategy," NBER Books, National Bureau of Economic Research, Inc, number rome97-1, October.
  8. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June.
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  10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  11. Matteo Ciccarelli & Alessandro Rebucci, 2002. "The Transmission Mechanism of European Monetary Policy: Is there Heterogeneity? Is+L2203 it Changing Over Time?," IMF Working Papers 02/54, International Monetary Fund.
  12. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, October.
  13. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  14. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
  15. Frank Smets, 1997. "Measuring monetary policy shocks in France, Germany and Italy: The role of the exchange rate," BIS Working Papers 42, Bank for International Settlements.
  16. Etsuro Shioji, 1997. "Spanish monetary policy: A structural VAR analysis," Economics Working Papers 215, Department of Economics and Business, Universitat Pompeu Fabra.
  17. Joaquim Vieira Ferreira Levy & Ioannis Halikias, 1997. "Aspects of the Monetary Transmission Mechanism Under Exchange Rate Targeting: The Case of France," IMF Working Papers 97/44, International Monetary Fund.
  18. Stefan Gerlach & Frank Smets, 1995. "The monetary transmission mechanism: Evidence from the G-7 countries," BIS Working Papers 26, Bank for International Settlements.
  19. Gert Peersman & Frank Smets, 2005. "The Industry Effects of Monetary Policy in the Euro Area," Economic Journal, Royal Economic Society, vol. 115(503), pages 319-342, 04.
  20. repec:cup:cbooks:9780521788885 is not listed on IDEAS
  21. 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.
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  24. repec:cup:cbooks:9780521783248 is not listed on IDEAS
  25. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
  26. F. Smets & R. Wouters, 1999. "The Exchange Rate and the Monetary Transmission Mechanism in Germany," DNB Staff Reports (discontinued) 35, Netherlands Central Bank.
  27. Michael Ehrmann, 2000. "Comparing monetary policy transmission across European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 58-83, March.
  28. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  29. Agresti, Anna Maria & Mojon, Benoît, 2001. "Some stylised facts on the euro area business cycle," Working Paper Series 0095, European Central Bank.
  30. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Wiley Blackwell, vol. 2(1), pages 85-116, April.
  31. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc.
  32. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series 0091, European Central Bank.
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