Monetary policy through the �credit-cost channel�. Italy and Germany

Giuliana Passamani and Roberto Tamborini

No 609, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

Abstract: In this paper we wish to extend the empirical content of the "credit-cost channel" of monetary policy that we proposed in Passamani and Tamborini (2005). In the first place, we replicate the econometric estimation of the model for Italy, to which we add Germany. We find confirmation that, in both countries, firms' reliance on bank loans (�credit channel�) makes aggregate supply sensitive to bank interest rates (�cost channel�), which are in turn driven by the inter-bank rate controlled by the central bank plus a credit risk premium charged by banks on firms. The second extension consists of a formal econometric analysis of the idea that the interest rate is an instrument of control for the central bank. The empirical results of the CCC model that, according to Johansen and Juselius (2003), innovations in the inter-bank rate qualify this variables as a "control variable" in the system. Hence we replicate the Johansen and Juselius technique of simulation of rule-based stabilization policy. This is done for both Italy and Germany, on the basis of the respective estimated CCC models, taking the inter-bak rate as the instrument and the inflation of 2% as the target. As a result, we find confirmation that inflation-targeting by way of inter-bank rate control, grafted onto the estimated CCC model, would stabilize inflation through structural shifts of the "AS curve", that is, the path of realizations in the output-inflation space.

Keywords: Macroeconomics and monetary economics; Monetary transmission mechanisms; Structural cointegration models; Italian economy; German economy (search for similar items in EconPapers)
JEL-codes: C32 E51 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-ban, 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)

Downloads: (external link)
http://www.unitn.it/files/9_06_passamani.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

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:trn:utwpde:0609

Access Statistics for this paper

More papers in Department of Economics Working Papers from Department of Economics, University of Trento, Italia Contact information at EDIRC.
Bibliographic data for series maintained by Luciano Andreozzi ().