The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S

52 Pages Posted: 21 Sep 2003  

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

European Central Bank (ECB)

Daniele Terlizzese

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: September 2003

Abstract

We revisit recent evidence on how monetary policy affects output and prices in the U.S. and in the euro area. The response patterns to a shift in monetary policy are similar in most respects, but differ noticeably as to the composition of output changes. In the euro area investment is the predominant driver of output changes, while in the U.S. consumption shifts are significantly more important. We dub this difference the output composition puzzle and explore its implications and several potential explanations for it. While the evidence seems to point at differences in consumption responses, rather than investment, as the proximate cause for this fact, the source of the consumption difference remains a puzzle.

Suggested Citation

Angeloni, Ignazio and Kashyap, Anil K. and Mojon, Benoit and Terlizzese, Daniele, The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S (September 2003). NBER Working Paper No. w9985. Available at SSRN: https://ssrn.com/abstract=447272

Ignazio Angeloni

Italian Finance Ministry - International Financial Relations ( email )

Via XX Settembre 97
Rome, Rome 00187
Italy

Anil K. Kashyap (Contact Author)

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

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 13 44 7849 (Phone)
+49 69 13 44 6000 (Fax)

Daniele Terlizzese

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paper statistics

Downloads
22
Abstract Views
1,199