DP4535 Has the Transmission Mechanism of European Monetary Policy Changed in the Run-Up to EMU?

Author(s): Matteo Ciccarelli, Alessandro Rebucci
Publication Date: September 2004
Keyword(s): Bayesian estimation, european monetary policy, Gibbs sampling, time-varying coefficient model, transmission mechanism
JEL(s): C11, C33, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4535

This Paper studies empirically the transmission mechanism of European monetary policy by means of time-varying, heterogenous coefficient models estimated in a numerical Bayesian fashion. Based on pre-EMU evidence from Germany, France, Italy, and Spain, we find that (i) the long-run cumulative impact on output of a common, homoskedastic monetary policy shock has decreased in all countries after 1991. These declines are statistically significant and accompanied by some changes in the conduct of monetary policy over the same period. At the same time, we also find that (ii) cross-country differences in the effects of the shock analysed have not decreased over time.