The Effects of Monetary Policy in the Euro Area

The Symmetry of ECB Monetary Policy Impact Under Scrutiny: An Assessment

“…Given the high uncertainty around estimated IRFs in classical models, when comparing the reaction of the same variable for two countries there is a high probability of incurring in a second type error, i.e. accepting the null hypothesis of homogeneity in the policy innovation effects even if the median responses seem to differ remarkably (Favero et al (1999) and Ehrmann et al (2003)). …”

“…Along with independent research, an institutional framework, the Eurosystem Monetary Policy Network (EMPN), was ad-hoc created in order to provide new evidence about the degree of synchronization of the newly established Currency Union and to assess whether the transmission mechanism of monetary policy was bound to function in different ways across the member countries (see Ehrmann et al 2003, Chatelain et al 2003, Mojon et al 2002.…”

“…Mojon and Peersman themselves, Favero et al (1999) and Ehrmann et al (2003) among others, note that basing the empirical analysis on pre-EMU data exposes the results to the Lucas critique, as the introduction of the new regime may cause a structural break and may lead the economies to adapt to the new environment and the new regulatory framework in a 3 relatively short time. Moreover, the comparability of the responses to the monetary innovations obtained through those standard VAR procedures is questionable, given the dimension of the confidence bounds that are very large and lead to accept the null hypothesis of symmetric transmission effects even when the medians of the impulse responses are sizably different (Favero et al 1999).…”

How monetary policy committees impact the volatility of policy rates

“…This comes at a cost for the hegemon, but benefits all its partners. 11 On the other hand, the volatility of the interest rate set by majority voting is greater than the volatility of the interest rate set either by a federalist hegemon, by consensus, or through Nash bargaining. The intuition for that result is that monetary policy accommodates the shocks that hit the median country.…”

Market Reactions to ECB Policy Innovations: A Cross-Country Analysis

“…These research efforts concentrated mainly on assessing the degree of heterogeneity of different channels of the transmission mechanism and their impact on the target variables (for a summary of the results see Chatelain et al, 2003 andEhrmann et al 2003) disregarding the role that financial markets play in the transmission mechanism of monetary policy innovations and forgetting their central role as policy signals.…”