The Industry Effects of Monetary Policy in the Euro Area

38 Pages Posted: 27 Apr 2003

See all articles by Gert Peersman

Gert Peersman

Ghent University - Department of Financial Economics

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: August 2002

Abstract

We first estimate the effects of an euro area-wide monetary policy change on output growth in eleven industries of seven euro area countries over the period 1980-1998. On average the negative effect of an interest rate tightening on output is significantly greater in recessions than in booms. There is, however, considerable cross-industry heterogeneity in both the overall policy effects and the degree of asymmetry across the two business cycle phases. We then explore which industry characteristics can account for this cross-industry heterogeneity. Differences in the overall policy effects can mainly be explained by the durability of the goods produced in the sector. In contrast, differences in the degree of asymmetry of policy effects seem to be related to differences in financial structure, in particular the maturity structure of debt, the coverage ratio, financial leverage and firm size.

Keywords: Monetary transmission mechanism, euro area, financial accelerator

JEL Classification: E4, E5

Suggested Citation

Peersman, Gert and Smets, Frank, The Industry Effects of Monetary Policy in the Euro Area (August 2002). Available at SSRN: https://ssrn.com/abstract=358041

Gert Peersman (Contact Author)

Ghent University - Department of Financial Economics ( email )

W. Wilsonplein 5D
Ghent, 9000
Belgium
+3292643514 (Phone)

HOME PAGE: www.feb.ugent.be/fineco/gert.html

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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