Monetary Transmission in the EURO Area: Where do we stand? (2002)
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BibTeX
@MISC{Mojon02monetarytransmission,
author = {Benoît Mojon and European Central Bank and Ignazio Angeloni and Daniele Terlizzese and Daniele Terlizzese},
title = {Monetary Transmission in the EURO Area: Where do we stand?},
year = {2002}
}
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Abstract
Drawing on recent Eurosystem research that uses a range of econometric techniques and a number of new data sets, we propose a comprehensive description of how monetary policy affects the euro area economy. We focus mainly on three questions: (1) what are the stylised facts concerning the transmission of monetary policy for the area as a whole and for individual countries? (2) can the "classic" interest rate channel (IRC) alone, without capital market imperfections, explain these facts? (3) if not, is the bank lending channel a likely candidate to complete the story? We find plausible euro-area wide monetary policy responses for prices and output that are similar to those generally reported for the US. However, investment (relative to consumption) seems to play a larger role in euro area monetary policy transmission than in the US. We cannot reject the hypothesis that the IRC completely characterises transmission in a few countries, and estimate it to be substantial in almost all. Where the IRC is not dominant, there is normally some direct evidence supporting the presence of a bank lending channel (or other financial transmission channel). The cases where financial effects appear important can be further split according to whether they primarily relate to consumption or investment.
Keyphrases
monetary transmission euro area monetary policy bank lending channel classic interest rate channel capital market imperfection comprehensive description individual country econometric technique stylised fact euro area monetary policy transmission financial effect new data set financial transmission channel recent eurosystem research euro area economy likely candidate direct evidence
