Monetary Policy Under Emu Differences in the Transmission Mechanism?

40 Pages Posted: 15 Feb 2006

See all articles by Benedict Clements

Benedict Clements

International Monetary Fund (IMF) - African Department

Zenon G. Kontolemis

European Union - European Commission

Joaquim Levy

Ministry of Finance, Brazil (on leave)

Date Written: July 2001

Abstract

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.

Keywords: European Monetary Union Monetary Policy Transmission Mechanism

JEL Classification: E32 E37 E50 F02

Suggested Citation

Clements, Benedict and Kontolemis, Zenon G. and Levy, Joaquim, Monetary Policy Under Emu Differences in the Transmission Mechanism? (July 2001). IMF Working Paper No. 01/102, Available at SSRN: https://ssrn.com/abstract=879670

Benedict Clements (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Zenon G. Kontolemis

European Union - European Commission ( email )

Belgium

Joaquim Levy

Ministry of Finance, Brazil (on leave) ( email )

Rio de Janeiro
Brazil

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