Is Monetary Policy Transmission Heterogeneous across Euro Area Countries and over Time? A Reassessment

Agnès Bénassy-Quéré, Matthieu Bussiere, Thaïs Masseï and Arthur Saint-Guilhem

Working papers from Banque de France

Abstract: We assess the degree of heterogeneity in monetary policy transmission (MPT) across euro area countries for the period 2000–2025. Using monthly local projections, we estimate the effects of monetary policy on a broad set of transmission variables at both euro area and national levels. First, we find limited heterogeneity of output and inflation responses to monetary policy shocks, despite asymmetric responses of mortgage market-related variables. Second, key structural differences, such as households’ indebtedness, debt maturity, interest rate rigidity and sectoral composition, do shape heterogeneities in MPT across euro area countries, according to our results. Considered jointly, though, these differences partly offset one another, leading to a relatively homogeneous transmission of monetary policy. Third, a monthly FAVAR estimation confirms and broadens our local projections results: asymmetry remains contained for output and inflation, but it is higher for sovereign spreads, food prices, credit variables and our consumption proxy. Finally, a rolling-window estimation of the FAVAR model shows that time-varying heterogeneity in MPT is characterized by temporary and crisis-driven divergences that consistently revert to a low baseline, reflecting key monetary policy interventions rather than deeper structural economic divergences. Unconventional monetary policies play a central role in this pattern: they tend to reduce country divergences during crisis periods, impacting more strongly the countries most affected, hence operating, by design, as a heterogeneous policy shock according to our main metric.

Keywords: Monetary Policy Transmission; High-Frequency Identification; Local Projections; FAVAR (search for similar items in EconPapers)
JEL-codes: C32 C38 E31 E52 F45 (search for similar items in EconPapers)
Pages: 97 pages
Date: 2026
New Economics Papers: this item is included in nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1062

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