EconPapers    
Economics at your fingertips  
 

The Cost Channel Effect of Monetary Transmission: How Effective Is the ECB’s Low Interest Rate Policy for Increasing Inflation?

Dorothea Schäfer (), Andreas Stephan () and Khanh Trung Hoang

No 1654, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We examine whether monetary transmission during the financial and sovereign debt crisis was dominated by the cost channel or by the demand-side channel effect. We use two approaches to track down the potential passthrough of changes in the monetary policy rate to those in consumer prices. First, we utilize panel data from the German manufacturing industry. Second, we conduct time series analyses for Germany, Italy, and Spain. We find that when manufacturing firms’ interest costs drop, the changes in their respective industry’s price index are smaller one year later. This finding is consistent with the cost channel theory. Taken together, the results of both panel data and time series analyses imply that the ECB’s low interest rate policy has worked better for boosting inflation in Italy and Spain than in Germany

Keywords: Inflation; cost channel; monetary transmission (search for similar items in EconPapers)
JEL-codes: G01 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.diw.de/documents/publikationen/73/diw_01.c.555297.de/dp1654.pdf (application/pdf)

Related works:
Working Paper: The Cost Channel Effect of Monetary Transmission: How Effective is the ECB's Low Interest Rate Policy for Increasing Inflation? (2017) Downloads
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:diw:diwwpp:dp1654

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().

 
Page updated 2019-10-16
Handle: RePEc:diw:diwwpp:dp1654