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One money, many markets: a factor model approach to monetary policy in the Euro Area with high-frequency identification

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  • Corsetti, Giancarlo
  • Duarte, Joao B.
  • Mann, Samuel

Abstract

We reconsider the effects of common monetary policy shocks across countries in the euro area, using a data-rich factor model and identifying shocks with high-frequency surprises around policy announcements. We show that the degree of heterogeneity in the response to shocks, while being low in financial variables and output, is significant in consumption, consumer prices and macro variables related to the labour and housing markets. Mirroring country-specific institutional and market differences, we find that home ownership rates are significantly correlated with the strength of the housing channel in monetary policy transmission. We document a high dispersion in the response to shocks of house prices and rents and show that, similar to responses in the US, these variables tend to move in different directions.

Suggested Citation

  • Corsetti, Giancarlo & Duarte, Joao B. & Mann, Samuel, 2018. "One money, many markets: a factor model approach to monetary policy in the Euro Area with high-frequency identification," LSE Research Online Documents on Economics 87182, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:87182
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    Cited by:

    1. Hintermaier, Thomas & Koeniger, Winfried, 2018. "Differences in Euro-Area Household Finances and their Relevance for Monetary-Policy Transmission," Economics Working Paper Series 1806, University of St. Gallen, School of Economics and Political Science.
    2. Koeniger, Winfried & Ramelet, Marc-Antoine, 2018. "Home Ownership and Monetary Policy Transmission," IZA Discussion Papers 11950, Institute of Labor Economics (IZA).
    3. Jef Boeckx & Maarten Dossche & Alessandro Galesi & Boris Hofmann & Gert Peersman, 2019. "Do SVARs with sign restrictions not identify unconventional monetary policy shocks?," Working Papers 1926, Banco de España;Working Papers Homepage.
    4. Darmouni, Olivier & Geisecke, Oliver & Rodnyanky, Alexander, 2019. "The Bond Lending Channel of Monetary Policy," MPRA Paper 95141, University Library of Munich, Germany.
    5. Faia, Ester & Pezone, Vincenzo, 2018. "Monetary policy and the cost of wage rigidity: Evidence from the stock market," SAFE Working Paper Series 242, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    6. Altavilla, Carlo & Brugnolini, Luca & Gürkaynak, Refet S. & Motto, Roberto & Ragusa, Giuseppe, 2019. "Measuring euro area monetary policy," Working Paper Series 2281, European Central Bank.
    7. Marek Jarocinski & Peter Karadi, 2017. "Central Bank Information Shocks," 2017 Meeting Papers 1193, Society for Economic Dynamics.
    8. Faia, Ester & Pezone, Vincenzo, 2018. "Monetary policy and the cost of wage rigidity: Evidence from the stock market," SAFE Working Paper Series 242, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

    More about this item

    Keywords

    monetary policy; high-frequency identification; monetary union; labour market; housing market;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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