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Monetary policy transmission: the case of Lithuania

Julius Stakenas () and Rasa Stasiukynaite ()
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Julius Stakenas: Bank of Lithuania
Rasa Stasiukynaite: Bank of Lithuania

No 24, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: In this paper we study the effect of a (standard) monetary policy shock in the euro area on the Lithuanian economy. For this purpose we employ a structural vector autoregressive (SVAR) model incorporating variables from both, the euro area and Lithuania. We identify the system using short-term zero restrictions. The model exhibits a block exogenous structure to account for the fact that Lithuania is a small economy and Lithuanian macro variables do not have a significant effect on the euro area variables. In general, we find that a monetary policy shock in the euro area has a stronger effect on the Lithuanian economy than it does on the euro area economy, though the effects are not significant, preventing firm conclusions. We further broaden our analysis employing a panel VAR model for the three Baltic states. This allows us to not only explore the time variation of the euro area monetary policy transmission in the Baltics, but also helps to verify our initial results. The effects are stronger when estimated using the panel VAR model.

Keywords: monetary policy; SVAR; panel VAR (search for similar items in EconPapers)
JEL-codes: C32 C33 E52 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2016-04-04
New Economics Papers: this item is included in nep-cba, nep-pr~, nep-mac and nep-mon
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