Are the Effects of Monetary Policy in the Euro Area Greater in Recessions than in Booms?

29 Pages Posted: 13 Dec 2002

See all articles by Gert Peersman

Gert Peersman

Ghent University - Department of Financial Economics

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: March 2001

Abstract

This paper investigates whether monetary policy impulses have asymmetric effects on output growth in seven countries of the euro area (Germany, France, Italy, Spain, Austria, Belgium and the Netherlands). First, it is shown that these seven countries share the same business cycle. Next, strong evidence is presented that area-wide monetary policy impulses, measured as the contribution of monetary policy shocks to the short-term interest rate in a simple VAR for the euro area economy, have significantly larger effects on output growth in recessions than in booms. These differences are most pronounced in Germany, France, Italy, Spain, and Belgium while they are much smaller in Austria and the Netherlands.

Keywords: monetary transmission mechanism, euro area

JEL Classification: E4, E5

Suggested Citation

Peersman, Gert and Smets, Frank, Are the Effects of Monetary Policy in the Euro Area Greater in Recessions than in Booms? (March 2001). Available at SSRN: https://ssrn.com/abstract=356041

Gert Peersman (Contact Author)

Ghent University - Department of Financial Economics ( email )

W. Wilsonplein 5D
Ghent, 9000
Belgium
+3292643514 (Phone)

HOME PAGE: www.feb.ugent.be/fineco/gert.html

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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