Monetary Transmission in the Euro Area: A Factor Model Approach
This paper studies the transmission of common monetary shocks across European countries by using a dynamic factor model (Forni-Reichlin (1998)). This technique allows to extract the common European monetary shock and to compute country-specific responses. Our identification employs rotations of the shocks space and a loss function (as in Uhlig (1999)). European countries display responses in line with a broad set of theoretical models and are characterized by quantitatively different responses. Spain and Germany are the most sensitive countries to common monetary shocks, while France, the Netherlands and especially Italy are the least. The interest rate channel is significant in explaining these asymmetries while we find no role for the credit channel.
|Date of creation:||08 May 2002|
|Date of revision:||15 May 2002|
|Note:||Type of Document - .pdf; prepared on PC; to print on HP;|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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