Monetary Policy Under EMU: Differences in the Transmission Mechanism?

By Benedict J. Clements, Zenon Kontolemis, Joaquim Vieira Ferreira Levy

August 1, 2001

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Benedict J. Clements, Zenon Kontolemis, and Joaquim Vieira Ferreira Levy. Monetary Policy Under EMU: Differences in the Transmission Mechanism?, (USA: International Monetary Fund, 2001) accessed November 13, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This study identifies differences in the monetary policy transmission mechanism across the countries in the euro area. It is argued that part of the differences in the response of economic activity to monetary policy during the pre-EMU period, found in other studies, reflected differences in monetary policy reaction functions, rather than different transmission mechanisms. In light of this, the paper constructs an empirical model on the basis of common reaction functions. The results confirm that even when a common monetary policy is implemented, its effects on economic activity are likely to differ across EMU countries. The paper also constructs an aggregate measure of the effect of monetary policy on prices and output. Finally, the paper examines the relative strength of the credit, exchange rate, and interest rate channels of monetary transmission in EMU countries.

Subject: Consumer price indexes, Credit, Exchange rates, Foreign exchange, Inflation, Monetary policy, Monetary transmission mechanism, Money, Prices

Keywords: Consumer price indexes, Credit, EMU difference, EMU economy, EMU model, Europe, European Monetary Union, Exchange rates, Inflation, Monetary Policy, Monetary policy shock, Monetary transmission mechanism, Reaction function, Transmission mechanism, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/102
Stock No:

WPIEA1022001
ISBN:

9781451852615
ISSN:

1018-5941

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