Financial integration and the transmission of monetary policy in the euro area

João B. Duarte and Mariana N. Pires

No 3165, Working Paper Series from European Central Bank

Abstract: We study how financial integration shapes the transmission of monetary policy to consumer prices and output in the euro area. Using local projections, we document that the effect of financial integration is continuous: greater integration systematically strengthens the pass-through of monetary policy. When integration falls to low levels—around the first quartile of its historical distribution— transmission to both prices and output becomes statistically and economically insignificant. The amplification pattern is pervasive across member states and more pronounced in peripheral economies. These results show that financial integration is a key determinant of monetary policy effectiveness within the euro area. JEL Classification: E44, E52, F36, F45

Keywords: financial integration; local projections; monetary policy; monetary union (search for similar items in EconPapers)
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253165

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