Risk sharing and monetary policy transmission

Sebastian Hauptmeier, Fédéric Holm-Hadulla and Théodore Renault

No 2746, Working Paper Series from European Central Bank

Abstract: Using regionally disaggregated data on economic activity, we show that risk sharing plays a key role in shaping the real effects of monetary policy. With weak risk sharing, monetary policy shocks trigger a strong and durable response in output. With strong risk sharing, the response is attenuated, and output reverts to its initial level over the medium term. The attenuating impact of risk sharing via credit and factor markets concentrates over a two-year horizon, whereas fiscal risk sharing operates over longer horizons. Fiscal risk sharing especially benefits poorer regions by shielding them against persistent output contractions after tightening shocks. JEL Classification: C32, E32, E52

Keywords: local projections; monetary policy; quantile regressions; regional heterogeneity; risk sharing (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-cba, nep-mon, nep-opm, nep-rmg and nep-ure
Note: 538998
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222746

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