How Has the Euro Changed the Monetary Transmission?

Jean Boivin (), Marc Giannoni and Benoit Mojon

No 14190, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper characterizes the transmission mechanism of monetary shocks across countries of the euro area, documents how this mechanism has changed with the introduction of the euro, and explores some potential explanations. The factor-augmented VAR (FAVAR) framework used is sufficiently rich to jointly model the euro area dynamics while permitting the transmission of shocks to be different across countries. We find important heterogeneity across countries in the effect of monetary shocks before the launch of the euro. In particular, we find that German interest-rate shocks triggered stronger responses of interest rates and consumption in some countries such as Italy and Spain than in Germany itself. According to our estimates, the creation of the euro has contributed 1) to a greater homogeneity of the transmission mechanism across countries, and 2) to an overall reduction in the effects of monetary shocks. Using a structural open-economy model, we argue that the combination of a change in the policy reaction function -- mainly toward a more aggressive response to inflation and output -- and the elimination of an exchange-rate risk can explain the evolution of the monetary transmission mechanism observed empirically.

JEL-codes: C3 D2 E31 E4 E5 F4 (search for similar items in EconPapers)
Date: 2008-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-opm
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (97)

Published as How Has the Euro Changed the Monetary Transmission Mechanism? , Jean Boivin, Marc P. Giannoni, Benoît Mojon. in NBER Macroeconomics Annual 2008, Volume 23 , Acemoglu, Rogoff, and Woodford. 2009

Downloads: (external link)
http://www.nber.org/papers/w14190.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14190

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14190

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().