Transmission of Shocks and Monetary Policy in the Euro Area' an Exercise With Nigem (original) (raw)
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Macroeconomic dynamics in the euro area
NBER Macroeconomics Annual, 2008
This paper characterizes the transmission mechanism of monetary and oil-price shocks across countries of the euro area, documents how this mechanism has changed with the introduction of the euro, and explores some potential explanations. The factor-augmented VAR (FAVAR) framework used is su¢ ciently rich to jointly model the euro area dynamics while permitting the transmission of shocks to be di¤erent across countries. We …nd important heterogeneity across countries in the e¤ect of macroeconomic shocks before the launch of the euro. In particular, we …nd that German interest-rate shocks triggered stronger responses of interest rates and consumption in some countries such as Italy and Spain, than in Germany itself. According to our estimates, the creation of the euro has contributed 1) to a greater homogeneity of the transmission mechanisms across countries, and 2) to an overall reduction in the e¤ects of this shock. Using a structural open-economy model, we argue that the combination of a change in the policy reaction function -mainly toward a more aggressive response to in ‡ation and output -and the elimination of an exchange rate risk can explain the evolution of the monetary transmission mechanism observed empirically.
… , URL http://ideas. repec. org/p/bdi/ …, 2001
Telephone +49 69 1344 0 Internet http://www.ecb.int Fax +49 69 1344 6000 Telex 411 144 ecb d All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. Abstract This paper analyses the monetary transmission mechanism in the euro area through the use of large scale macroeconomic models at the disposal of the European Central Bank and the National Central Banks of the Eurosystem. The results reported are based on a carefully designed common simulation experiment involving a 100 basis point rise in the policy interest rate for two years accompanied by common assumptions regarding the path of long-term interest rates and the exchange rate. Aggregating the country level results, the fall in output is found to reach a maximum of 0.4% after 2 years. The maximum aggregate fall in prices is also 0.4%, but it occurs 2 years later. The dominant channel of transmission in the first two years is the exchange rate channel, but in terms of the impact on output, the user cost of capital channel becomes dominant from the third year of the simulation onwards. E C B • W o r k i n g P a p e r N o 9 4 • D e c e m b e r 2 0 0 1 4 This paper reports the results of a common monetary policy experiment that has been undertaken using large scale macroeconomic models at the disposal of the European Central Bank and the National Central Banks of the Eurosystem. The results reported are the fruit of co-operation within the Working Group on Econometric Modelling and are based on a carefully designed common simulation experiment. This involved a 100 basis point rise in the policy interest rate for two years accompanied by common assumptions regarding the path of long-term interest rates and the exchange rate.
An area-wide model for the euro area
Economic Modelling, 2005
This paper presents a quarterly estimated structural macroeconomic model for the euro area, the AWM, which is a medium-sized model that treats the euro area as a single economy. The model is designed to have a long-run equilibrium consistent with neo-classical economic theory while the short-run dynamics are largely demand-driven. The current version of the AWM is mostly backwardlooking and is largely estimated rather than calibrated. A general overview of the structure of the model and of its long-run and short-run properties is given, with particular emphasis on the steady state properties, and a review of key equations. Results from two illustrative simulations are provided: a fiscal expenditure shock and a change in interest rates, with and without policy responses, respectively.
2002
Telephone +49 69 1344 0 Internet http://www.ecb.int Fax +49 69 1344 6000 Telex 411 144 ecb d All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. Abstract This paper analyses the monetary transmission mechanism in the euro area through the use of large scale macroeconomic models at the disposal of the European Central Bank and the National Central Banks of the Eurosystem. The results reported are based on a carefully designed common simulation experiment involving a 100 basis point rise in the policy interest rate for two years accompanied by common assumptions regarding the path of long-term interest rates and the exchange rate. Aggregating the country level results, the fall in output is found to reach a maximum of 0.4% after 2 years. The maximum aggregate fall in prices is also 0.4%, but it occurs 2 years later. The dominant channel of transmission in the first two years is the exchange rate channel, but in terms of the impact on output, the user cost of capital channel becomes dominant from the third year of the simulation onwards. E C B • W o r k i n g P a p e r N o 9 4 • D e c e m b e r 2 0 0 1 4 This paper reports the results of a common monetary policy experiment that has been undertaken using large scale macroeconomic models at the disposal of the European Central Bank and the National Central Banks of the Eurosystem. The results reported are the fruit of co-operation within the Working Group on Econometric Modelling and are based on a carefully designed common simulation experiment. This involved a 100 basis point rise in the policy interest rate for two years accompanied by common assumptions regarding the path of long-term interest rates and the exchange rate.
Euro area and global oil shocks: an empirical model-based analysis
2012
We assess the impact of oil shocks on euro-area macroeconomic variables by estimating a new-Keynesian small open economy model with Bayesian methods. Oil price is determined according to supply and demand conditions in the world oil market. We find that the impact of an increase in the price of oil depends upon the underlying sources of variation: when the driver
An area-wide model (AWM) for the euro area
2001
Introduction 1 Key Features of the euro area-wide model 2 The estimated equations: summary view, key parameters and dynamic estimates 2.1 A Birds Eye View of the Model 2.2 Key Empirical Features of the Estimated Equations 2.3 The main equations of the model 2.3.1 The production function and factor demand 2.3.2 Components of Aggregate Demand 2.3.3 Prices and Costs 2.3.4 Fiscal and external accounts 2.3.5 Monetary and financial sector 3 Long-Run Properties of the Model 3.1 The long-run real equilibrium 3.2 Determination of prices in the long run 3.3 Adjustment to equilibrium and short-run mechanisms 4 Some Standard Simulation Results 4.1 Shock to Government Consumption by 1% of GDP (ex-ante), permanent 4.2 Interest rate increase of 100 basis point, sustained for two years 5 Conclusions References
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Journal of Forecasting, 1992
This paper examines the implications of alternative monetary policy rules for economic stabilization within Europe, using the OECD world model, INTERLINK. The results suggest that policy linkage through the Exchange Rate Mechanism will have differing effects on the effectiveness of stabilization policies depending on the nature of economic shocks. For demand shocks, the choice of monetary rule in the country of the 'anchor' currency is of more consequence than the flexibility of exchange rates. For supply shocks, exchange rate rigidity is likely to have more problematic effects on economic adjustment. Spillover effects are also important when the shock is felt primarily by the 'anchor' economy.
JCMS: Journal of Common Market Studies, 2005
We use a structural vector autoregression model to identify and compare demand and supply shocks between euro area countries and central and eastern European countries (CEECs). The shocks and the shock adjustment dynamics of these countries are also compared to western European EU countries that have not yet adopted the euro. Focusing on the period 1993-2001, we find that there are still considerable differences in the shocks and in the adjustment process to shocks between the euro area and the CEECs. However, there are indications that the differences between several individual CEECs and the euro area have declined recently. two anonymous referees for their valuable comments. Margaret Boesch provided impeccable secretarial support.