Monetary Policy Under EMU : Differences in the Transmission Mechanism?

Author/Editor:

Benedict J. Clements ; Zenon Kontolemis ; Joaquim Vieira Ferreira Levy

Publication Date:

August 1, 2001

Electronic Access:

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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.

Series:

Working Paper No. 01/102

Subject:

English

Publication Date:

August 1, 2001

ISBN/ISSN:

9781451852615/1018-5941

Stock No:

WPIEA1022001

Format:

Paper

Pages:

39

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