Euro Area monetary policy transmission in Estonia

Gertrud Errit () and Lenno Uusküla

No wp2013-7, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This paper studies the effect of a monetary policy shock in the euro area on the main Estonian economic and financial variables between 2000 and 2012. Using a standard structural vector autoregression (SVAR) model we find strong and persistent effects on Estonian GDP, private consumption, corporate investment and imports. A monetary policy shock has also strong and sluggish effects on the housing loan and consumer credit interest rates. The estimated reaction of Estonian GDP and the GDP deflator-based inflation rate is about four times stronger than the reaction of euro area-wide aggregates. The Estonian money market interest rate (the 3-month Talibor) reacts about twice as strongly as the euro area money market interest rate (the 3-month Euribor). We also show that this finding is sensitive to the inclusion of the data from the years of the recent financial and economic crisis. We conjecture that household interest rates can play an important role in propagating monetary policy shocks in Estonia.

Keywords: monetary policy; SVAR; Estonia; euro area (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 (search for similar items in EconPapers)
Date: 2013-12-09, Revised 2013-12-09
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Euro area monetary policy transmission in Estonia (2014)
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