Working Paper: CEPR ID: DP4535
Authors: Matteo Ciccarelli; Alessandro Rebucci
Abstract: This Paper studies empirically the transmission mechanism of European monetary policy by means of time-varying, heterogenous coefficient models estimated in a numerical Bayesian fashion. Based on pre-EMU evidence from Germany, France, Italy, and Spain, we find that (i) the long-run cumulative impact on output of a common, homoskedastic monetary policy shock has decreased in all countries after 1991. These declines are statistically significant and accompanied by some changes in the conduct of monetary policy over the same period. At the same time, we also find that (ii) cross-country differences in the effects of the shock analysed have not decreased over time.
Keywords: Bayesian estimation; European monetary policy; Gibbs sampling; time-varying coefficient model; transmission mechanism
JEL Codes: C11; C33; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| common monetary policy shock (E39) | output (C67) |
| common monetary policy shock (E39) | output (Germany, France, Italy, Spain) (O52) |
| cross-country differences in effects of monetary policy shock (F42) | persistence (C41) |