The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S.

By Ignazio Angeloni, Anil K. Kashyap, Benoît Mojon, D. Terlizzese. Social Science Research Network, 2003

128 citations recorded by the source corpus.

We revisit recent evidence on how monetary policy affects output and prices in the U.S. and in the euro area. The response patterns to a shift in monetary policy are similar in most respects, but differ noticeably as to the composition of output changes. In the euro area investment is the predominant driver of output changes, while in the U.S. consumption shifts are significantly more important. We dub this difference the output composition puzzle and explore its implications and several potential explanations for it. While the evidence seems to point at differences in consumption responses, rather than investment, as the proximate cause for this fact, the source of the consumption difference remains a puzzle.

View Paper: https://www.semanticscholar.org/paper/bc75f64153dee58871ea226cfb83847922c380fc

Citations in the corpus

• Jump-Starting the Euro-Area Recovery: Would a Rise in Core Fiscal Spending Help the Periphery? (2015, unknown): “The response of output to the monetary policy shock seems well in line with the evidence provided by Angeloni et al. (2003) in a similar VAR framework (as noted above), though the latter was estimated over an earlier 1965–2001 sample period.”
• Monetary transmission in the euro area: early evidence (2003, unknown): “More specifically – see Angeloni et al. (2003a) – the IRC is the mechanism that operates in the absence of capital market imperfections, i.e. only through the intertemporal reallocation of expenditures that follows a change in expected real interest rates (which are the prices of such reallocation).”
• The credit channel of monetary policy: Evidence from the housing market (2008, unknown): “In this sense, much work has been done on the relative impact of monetary policy on firms with different dependence on bank funds, such as small and big firms (see Gertler and Gilchrist, 1994).(1) This paper extends the analysis of the credit channel of monetary transmission on the households’ deman”
• Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through (2007, unknown): “We build on the work of Christiano et al. (2005) and extend their DSGE model to an open economy.”
• Mortgage Markets, Collateral Constraints, and Monetary Policy: Do Institutional Factors Matter? (2007, unknown): “(16)To de…ne a utility-based aggregate price index one needs to assume the existence of an additional …nal good producer, whose task consists in assembling housing and consumption services via the production function (3).”
• The Role of Interbank Markets in Monetary Policy: A Model with Rationing (2008, unknown): “13 1 3 Angeloni et al. (2003) compare the European Area and the United States response patterns to a shift in monetary policy and find that they differ noticeably as to the composition of output changes.”