Asymmetric monetary policy effects in EMU

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This paper develops a semi-structural modelling approach to study asymmetric monetary transmission in Europe. A system of dynamic equations containing reaction functions for monetary policy as well as output gap and inflation equations is simultaneously estimated for France, Germany and Italy. We find asymmetries on the demand side in the strength of interest rate transmission and on the supply side in the effects of the output gap on inflation. The responses are similar in Germany and Italy and generally stronger than in France. Out-of-sample tests do not find a structural break in the transmission mechanisms prior to the establishment of the European Monetary Union.

Document Type: Research Article


Affiliations: 1: University of Duisburg-Essen, Campus Essen, D-45117 Essen, Germany 2: Philipps-University Marburg and ZEI, University of Bonn, Germany

Publication date: June 10, 2006

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