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

52 Pages Posted: 21 Sep 2003 Last revised: 15 Oct 2022

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

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
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Italy

Anil K. Kashyap (Contact Author)

University of Chicago, Booth School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Federal Reserve Bank of Chicago ( email )

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Benoit Mojon

Banque de France ( email )

Paris
France

Daniele Terlizzese

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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