Working Paper: NBER ID: w9984
Authors: Ignazio Angeloni; Anil K. Kashyap; Benoit Mojon; Daniele Terlizzese
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 stylized 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 U.S. However, investment (relative to consumption) seems to play a larger role in euro area monetary policy transmission than in the U.S. We cannot reject the hypothesis that the IRC completely characterizes 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.
Keywords: No keywords provided
JEL Codes: E52; E20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy (E52) | Prices (D49) |
| Monetary policy (E52) | Output (Y10) |
| Investment (G31) | Monetary policy transmission (F42) |
| IRC (L96) | Transmission mechanism (F42) |
| Bank lending channel (G21) | Economic outcomes (F69) |
| Monetary policy (E52) | Investment (G31) |