Kiel Working Papers, Kiel Institute for World Economics
No 1718:
The International Transmission of Euro Area Monetary Policy Shocks
Nils Jannsen and Melanie Klein
Abstract: This paper analyzes the international transmission effects
of euro area monetary policy shocks in to other western European countries,
namely the United Kingdom, Sweden, Switzerland, Denmark, and Norway. For
this purpose, we use a structural VAR model of the euro area and augment it
consecutively by the foreign variables of interest. We find that a monetary
policy shock in the euro area leads to a largely similar change in the
interest rate and in GDP in these other western European countries. The
effects on their exchange rates are limited and their trade balances
usually are unaffected. Our results suggest that the income absorption
effect to be more important than the expenditure switching effect in the
international transmission of monetary policy and that exchange rate
stabilization seems to be of some concern to monetary policy makers in
small open economies
Keywords: Monetary policy, international transmission, euro area, vector autoregression; (follow links to similar papers)
JEL-Codes: C32,; E52,; F41; (follow links to similar papers)
42 pages, July 2011
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