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Peter J. A. van Els

1 December 2001
WORKING PAPER SERIES - No. 94
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Abstract
This paper analyses the monetary transmission mechanism in the euro area through the use of large scale macroeconomic models at the disposal of the European Central Bank and the National Central Banks of the Eurosystem. The results reported are based on a carefully designed common simulation experiment involving a 100 basis point rise in the policy interest rate for two years accompanied by common assumptions regarding the path of long-term interest rates and the exchange rate. Aggregating the country level results, the fall in output is found to reach a maximum of 0.4% after 2 years. The maximum aggregate fall in prices is also 0.4%, but it occurs 2 years later. The dominant channel of transmission in the first two years is the exchange rate channel, but in terms of the impact on output, the user cost of capital channel becomes dominant from the third year of the simulation onwards
JEL Code
C50 : Mathematical and Quantitative Methods→Econometric Modeling→General
E17 : Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
Network
Eurosystem Monetary Transmission Network