The effects of monetary policy shocks on flow of funds: the case of Italy
We study in a VAR model the effects of monetary policy shocks with new Italian flow of funds data for 1980-2002. First, our results are consistent with the literature, without being affected by commonly found puzzles. Second, new features of the transmission of monetary policy shocks to the Italian economy are provided. We do not find evidence in favour of financial frictions which would prevent firms from a prompt reduction of nominal expenditures. Households also quickly adjust their portfolios leading to a careful evaluation of the hypothesis underlying limited participation models. Finally, the public sector increases net borrowing after the shock, improving on puzzling opposite results in the literature
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