Monetary policy effects: new evidence from the Italian flow-of-funds

Monetary Policy and the Flow of Funds in the Euro Area

“…agreed that these aspects are worth investigating both for the transmission of monetary policy and for macro-prudential purposes, the main reason for this gap in the literature is probably the lack of sufficiently long and disaggregated time series which could allow replicating the "flow of funds-in-a-VAR" analysis (the UK is a significant exception). 3 This paper extends Christiano et al (1996) and Bonci and Columba (2008) kind of analysis to the euro area economy as a whole. The flow of funds are used in order to gauge new insights into the impact of monetary tightening on the financing (borrowing) and financial investment (lending) decisions of households, firms, the government sector and the foreign sector.…”

“…Their knowledge has become even more urgent in the context of the recent financial crisis, where the level of debt (first private, then public) has clearly played a crucial role. A few exceptions to this shortage of information are the analyses available for the US and for Italy (respectively, Christiano et al (1996), and Bonci and Columba (2008)). One possible reason is the rather limited data availability.…”

“…Finally, they observed a (puzzling) lower public deficit in the short run, which they explained with a temporary increase of personal tax receipts. Bonci and Columba (2008) applied a similar methodology to Italy. Differently from Christiano et al (1996) they find that following a restrictive monetary policy shock non-financial corporations 1 decrease both the acquisition of new financial assets and the issuance of new debt; in other words, they find no evidence of financial frictions which would prevent firms from adjusting the level of their nominal expenditures, as seemed to be the case for the US economy.…”

“…In line with Christiano et al (1996) and Bonci and Columba (2008) we focus on net funds raised by the sectors, defined as the difference between the net incurrence of liabilities and the net acquisition of financial assets. A positive (negative) value of net funds raised means that the sector is a net borrower (net lender) of funds vis-à-vis the rest of the economy, including the foreign sector.…”

“…To allow for comparability, our set of financial aggregates also includes those considered by Christiano et al (1996) and Bonci and Columba (2008). For each economic sector we consider net funds raised (new debt issued net of new financial assets acquired) and some sector-specific assets and liabilities.…”