Monetary Policy Shocks in the Euro Area and Global Liquidity Spillovers

32 Pages Posted: 11 Mar 2004

Date Written: June 2007

Abstract

We analyse the international transmission of monetary policy shocks with a focus on the effects of foreign liquidity on the euro area. We estimate two domestic structural VAR models for the euro area and then we introduce a global liquidity aggregate. The impulse responses show that a positive shock to foreign liquidity leads for the euro area to a permanent increase in M3 and in the price level, a temporary rise in real output and a temporary appreciation of the euro real effective exchange rate. Moreover, we find that innovations in global liquidity play an important role in explaining price and output fluctuations.

Keywords: Monetary policy, Structural VAR, International spillovers

JEL Classification: E52, F01

Suggested Citation

Sousa, João and Zaghini, Andrea, Monetary Policy Shocks in the Euro Area and Global Liquidity Spillovers (June 2007). ECB Working Paper No. 309, Bank of Italy Temi di Discussione (Working Paper) No. 629, Available at SSRN: https://ssrn.com/abstract=514122

João Sousa

Banco de Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Andrea Zaghini (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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