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The International Transmission of Euro Area Monetary Policy Shocks

  • Nils Jannsen
  • Melanie Klein

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

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1718.

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Length: 42 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:kie:kieliw:1718
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  1. Nicoletta Batini & Stephen P. Millard & Richard Harrison, 2000. "Monetary Policy Rules For An Open Economy," Computing in Economics and Finance 2000 361, Society for Computational Economics.
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  12. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
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  17. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
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  19. 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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