Are the Effects of Monetary Policy in the Euro Area Greater in Recessions than in Booms?

By G. Peersman, Frank Smets. Social Science Research Network, 2001

175 citations recorded by the source corpus.

This paper investigates whether monetary policy impulses have asymmetric effects on output growth in seven countries of the euro area (Germany, France, Italy, Spain, Austria, Belgium and the Netherlands). First, it is shown that these seven countries share the same business cycle. Next, strong evidence is presented that area-wide monetary policy impulses, measured as the contribution of monetary policy shocks to the short-term interest rate in a simple VAR for the euro area economy, have significantly larger effects on output growth in recessions than in booms. These differences are most pronounced in Germany, France, Italy, Spain, and Belgium, while they are much smaller in Austria and the Netherlands JEL Classification: E4, E5

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/0df4d3579f1b1b267b316aeeca04dcfbd5be38e4

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Citations in the corpus

The effectiveness of unconventional monetary policy at the zero lower bound : a cross-country analysis (2014, background): “This explanation is also commonly put forward to explain why monetary policy shocks have a larger effect on output and a smaller effect on the price level in recessions (e.g., Weise 1999, Peersman and Smets 2002).”
Financial Frictions and the Monetary Transmission Mechanism: Theory, Evidence and Policy Implications (2002, unknown): “$ D # ) Chart 1: The effects of a monetary policy shock in the Euro-area, the United States and the United Kingdom Note: Results for Euro-area and US obtained from Peersman and Smets (2001).”
Business Cycle Transmission from the US to Germany: A Structural Factor Approach (2007, unknown): “25 Appendix B In order to compute the standard errors for the impulse response functions, we mainly follow Giannone, Reichlin and Sala (2002). The authors argue that the only source of uncertainty to be taken into account in computing confidence intervals is the one regarding the estimation of the V”
The Monetary Policy of the European Central Bank (2007, unknown): “As argued by Peersman and Smets (2002), this can be rationalized by the presence of either capacity constraints or menu costs.”
Pushing on a String: US Monetary Policy is Less Powerful in Recessions (2016, background): “Smets and Peersman (2001) study the response of quarterly industrial production growth to monetary policy in seven Euro-area countries.”