The Monetary Transmission Mechanism in the Euro Area: has it changed with the EMU? A VAR approach, with fiscal policy and financial stress considerations

Antonio Afonso and Antonio Jorge Silva

No 2014/10, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: We study whether the adoption of the Euro and a single monetary policy have brought about a change in the monetary transmission mechanism and between the interactions of monetary policy, fiscal policy and financial stress in the Euro area. We find that the stylized facts of monetary transmission remain valid, but the response of output and, especially, fiscal and financial stress variables to a monetary policy shock, seems to be stronger in the post-EMU period. Regarding fiscal and financial stress shocks, the inclusion in the post-EMU period of subprime and sovereign debt crises yields, changes, not only in the scale, but also in the patterns of the responses of our model’s main variables.

Keywords: monetary transmission mechanism; fiscal policy; financial stress; Euro area; vector autoregressions (search for similar items in EconPapers)
JEL-codes: E42 E44 E52 E58 E63 (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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