Aspects of the Monetary Transmission Mechanism Under Exchange Rate Targeting: The Case of France

Joaquim Levy and Ioannis Halikias

No 1997/044, IMF Working Papers from International Monetary Fund

Abstract: This paper examines monetary transmission in France using the vector autoregression methodology. Interest rates are decomposed into external and domestic components, and a nonrecursive contemporaneous structure is used to identify the system. Innovations in the external component are found to have a significant impact on economic activity, while innovations in the domestic premium have a statistically negligible effect, suggesting that interest rate hikes in defense of the franc may have had a smaller impact on the economy than usually thought. The paper also discusses some implications of Economic and Monetary Union and provides evidence concerning the importance of the credit channel in France.

Keywords: WP; transmission mechanism; rate; interest rate differential; DM; Monetary Policy Transmission; EMU; differentials vis-à-vis; anchor currency interest rate; VAR model; deutsche mark; interest rate change; VAR methodology; interest rate increase; Short term interest rates; Monetary transmission mechanism; Vector autoregression; Credit; Exchange rates (search for similar items in EconPapers)
Pages: 38
Date: 1997-04-01
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Citations: View citations in EconPapers (9)

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