Monetary policy shocks in the euro area and global liquidity spillovers

Abstract

This paper analyses the international transmission of monetary shocks with a special focus on the effects of foreign money ("global liquidity") on the euro area. We estimate structural VAR models for the euro area and the global economy including a global liquidity aggregate. The impulse responses obtained show that a positive shock to extra-euro area liquidity leads to permanent increases in the euro area M3 aggregate and the price level, a temporary rise in real output and a temporary appreciation of the real effective exchange rate of the euro. Moreover, we find that innovations in global liquidity play an important role in explaining price and output fluctuations in the euro area and in the global economy.JEL classification: E52.

Impact of Monetary Policy on Economic Growth: A Case Study of South Africa

“…Empirical results show that a tight monetary policy has a temporary effect on output, causing output to decline for three months in a statistically significant fashion. The findings confirm the work of previous studies (Sousa and Zaghini, 2008;Sims, 1992;Eichenbaum and Evans, 1995). Employing the same estimation technique, Bhuiyan (2008) examined the effects of monetary policy shock in Canada by using the overnight target rate as the monetary policy instrument.…”

Global monetary policy shocks in the G5: A SVAR approach

“…Our first choice is based on a specification proposed by Kim (1999) for each of the G7 countries and later tested for the Euro area as a whole by Peersman and Smets (2003) and Sousa and Zaghini (2004). However, since the specification estimated in the latter two papers slightly differs from the one in Kim (1999),…”

“…In particular, we will keep the quarterly frequency of the data and four out of five variables as in Peersman and Smets (2003) and Sousa and Zaghini (2004), but, following Kim (1999), we will use a total commodities index converted into domestic currency instead of the effective exchange rate of the euro.…”

Understanding global liquidity

“…1 Traditionally, empirical studies have measured global liquidity conditions based on some global aggregates of broad money (e.g. Sousa and Zaghini (2004), Rue¤er and Stracca (2006), D'Agostino and Surico (2009)). More recently, credit has been proposed as an alternative measure of global liquidity (Bruno and Shin (2012), Domanski et al (2011), CGFS (2011).…”