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The International Transmission of Euro Area Monetary Policy Shocks

Author

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  • Nils Jannsen
  • Melanie Klein

Abstract

This paper analyzes the international transmission effects of euro area monetary policy shocks in to other western European countries, namely the United Kingdom, Sweden, Switzerland, Denmark, and Norway. For this purpose, we use a structural VAR model of the euro area and augment it consecutively by the foreign variables of interest. We find that a monetary policy shock in the euro area leads to a largely similar change in the interest rate and in GDP in these other western European countries. The effects on their exchange rates are limited and their trade balances usually are unaffected. Our results suggest that the income absorption effect to be more important than the expenditure switching effect in the international transmission of monetary policy and that exchange rate stabilization seems to be of some concern to monetary policy makers in small open economies

Suggested Citation

  • Nils Jannsen & Melanie Klein, 2011. "The International Transmission of Euro Area Monetary Policy Shocks," Kiel Working Papers 1718, Kiel Institute for the World Economy.
  • Handle: RePEc:kie:kieliw:1718
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    File URL: https://www.ifw-members.ifw-kiel.de/publications/the-international-transmission-of-euro-area-monetary-policy-shocks/the-international-transmission-of-euro-area-monetary-policy-shocks
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    Keywords

    Monetary policy; international transmission; euro area; vector autoregression;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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