Monetary Transmission in the Euro Area: Where Do We Stand?

72 Pages Posted: 5 Feb 2002

See all articles by Ignazio Angeloni

Ignazio Angeloni

Italian Finance Ministry - International Financial Relations

Anil K. Kashyap

University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago

Benoit Mojon

Banque de France

Daniele Terlizzese

Bank of Italy

Date Written: January 2002

Abstract

Drawing on recent Eurosystem research that uses a range of econometric techniques and a number of new data sets, we propose a comprehensive description of how monetary policy affects the euro area economy. We focus mainly on three questions: (1) what are the stylised facts concerning the transmission of monetary policy for the area as a whole and for individual countries? (2) can the "classic" interest rate channel (IRC) alone, without capital market imperfections, explain these facts? (3) if not, is the bank lending channel a likely candidate to complete the story? We find plausible euro-area wide monetary policy responses for prices and output that are similar to those generally reported for the US. However, investment (relative to consumption) seems to play a larger role in euro area monetary policy transmission than in the US. We cannot reject the hypothesis that the IRC completely characterises transmission in a few countries, and estimate it to be substantial in almost all. Where the IRC is not dominant, there is normally some direct evidence supporting the presence of a bank lending channel (or other financial transmission channel). The cases where financial effects appear important can be further split according to whether they primarily relate to consumption or investment.

Keywords: Monetary policy, transmission mechanism, euro area, bank lending

JEL Classification: E52, E58, E44

Suggested Citation

Angeloni, Ignazio and Kashyap, Anil K. and Mojon, Benoit and Terlizzese, Daniele, Monetary Transmission in the Euro Area: Where Do We Stand? (January 2002). Available at SSRN: https://ssrn.com/abstract=299382 or http://dx.doi.org/10.2139/ssrn.299382

Ignazio Angeloni (Contact Author)

Italian Finance Ministry - International Financial Relations ( email )

Via XX Settembre 97
Rome, Rome 00187
Italy

Anil K. Kashyap

University of Chicago, Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7260 (Phone)
773 702-0458 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-7260 (Phone)
773-702-0458 (Fax)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Benoit Mojon

Banque de France ( email )

Paris
France

Daniele Terlizzese

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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