Monetary Transmission in the Euro Area: Where Do We Stand?

By Benoît Mojon, Anil K. Kashyap, Ignazio Angeloni, D. Terlizzese. Social Science Research Network, 2002

263 citations recorded by the source corpus.

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 JEL Classification: E52, E58, E44

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/b976479c294b1d8095dcf1517578f5d1fdc43f65

Citations in the corpus

• Can Monetary Policy Affect the Real Economy (2002, unknown): “In this section we seek to summarise the results of some recent simulations undertaken by others based on macroeconometric models.”
• The Role of Interbank Markets in Monetary Policy: A Model with Rationing (2008, unknown): “See Angeloni et al. (2002) for additional empirical evidence on the magnitude puzzle in Europe.”
• The role of banks in the transmission of monetary policy (2012, unknown): “While Angeloni et al. (2003) find that most of the European evidence is consistent with a classic interest rate channel for the transmission of monetary policy, they do find some country-specific evidence supporting a bank lending channel, with bank loan supply reacting to changes in monetary policy”
• The Transmission of Monetary Policy in the Euro Area: Are the Effects Different Across Countries?* (2004, unknown): “Angeloni et al. (2002) summarize a number of research papers, provided by the staff of the ESCB, on different transmission channels in Euro area countries. The challenge is even more complicated for the Euro area because while the European Central Bank (ECB) may conduct monetary policy based on unio”