Will a Common European Monetary Policy Have Asymmetric Effects?

Luigi Guiso, Anil Kashyap, Fabio Panetta () and Daniele Terlizzese
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Fabio Panetta: Bank of Italy, Economic Research Department

No 384, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We survey the existing work on the cross-country differences in the transmission of European monetary policy. We find that prior work, focusing on macroeconomic data, does not clearly answer the question posed in the title and offer some explanations for the ambiguity. Aside from the inappropriate design of the prior empirical exercises, we point to the need to use microeconomic data to disentangle the potentially confounding effects of differences in the behavior of agents in different countries and the composition of agents across countries. We review the leading theories of monetary non-neutrality to find the structural features of the economy that in principle could alter the transmission mechanism. We provide some evidence that these structural features do differ markedly among the major European economies. We then explore the potential importance of these structural factors drawing on firm-level data from one country, Italy, and we show how the business cycle has differentially affected firms in Italy over the last decade. It appears that the 1992 monetary tightening and 1993 recession were not uniformly felt by Italian firms, but differed along the lines suggested by several of the theories. Several of the dimensions which appear to be important in the Italian experience are dimensions which vary noticeably across European countries, suggesting that further work on firm-level comparisons in other European countries may be valuable.

Keywords: monetary policy transmission asymmetries; firm level data (search for similar items in EconPapers)
JEL-codes: E32 E52 G32 (search for similar items in EconPapers)
Date: 2000-10
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Will a Common European Monetary Policy Have Asymmetric Effects? (2000)
Journal Article: Will a common European monetary policy have asymmetric effects? (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_384_00

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