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Differences in monetary policy transmission? A case not closed

  • Mads Kieler
  • Tuomas Saarenheimo
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    The advent of EMU inspired a large literature searching for differences in the monetary policy transmission among European countries. Stylised facts seemed to arise, classifying the countries as having either rapid or slow transmission. Our paper takes a comprehensive look at the existing empirical results, and finds few recurrent features supporting the presumed stylised facts. The econometric part examines the difficulties of meaningful identification of a monetary shock. The paper proposes a general approach to reducing the identification space through economic restrictions. We conclude that uncertainties in macro-econometric analysis are too large to allow establishing any statistically significant differences.

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    File URL: http://ec.europa.eu/economy_finance/publications/publication11189_en.pdf
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    Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 132.

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    Length: 44 pages
    Date of creation: Nov 1998
    Date of revision:
    Handle: RePEc:euf:ecopap:0132
    Contact details of provider: Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels
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    Web page: http://ec.europa.eu/economy_finance/index_en.htm
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    1. Davis, E Philip, 1994. "Banking, Corporate Finance, and Monetary Policy: An Empirical Perspective," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 49-67, Winter.
    2. 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.
    3. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
    4. 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.
    5. Ramana Ramaswamy & Torsten Sløk, 1998. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 374-396, June.
    6. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-53, July.
    7. Fernando Barran & Virginie Coudert & Benoît Mojon, 1996. "The Transmission of Monetary Policy in the European Countries," Working Papers 1996-03, CEPII research center.
    8. 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.
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