Money and monetary policy transmission in the euro area: evidence from FAVAR- and VAR approaches

Barno Blaes

No 2009,18, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank, Research Centre

Abstract: This paper investigates the transmission of monetary policy in the euro area based on the factor augmented vector autoregressive approach of Bernanke, Boivin and Eliasz (2005) as well as on a standard VAR model. We focus on the reaction of monetary aggregates to a one-off monetary policy shock. We find that - as theory suggests - money growth is dampened by a restrictive monetary policy stance in the longer term. In the short-run, however, M3 growth may increase due to portfolio shifts caused by the rise in the short-term interest rate. This has consequences for the interpretation of money growth as an input for monetary policy decisions. --

Keywords: Monetary policy transmission; FAVAR; VAR; money stock; euro area. (search for similar items in EconPapers)
JEL-codes: C32 E40 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:zbw:bubdp1:200918

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