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Journal of Economic Integration 2009 September;24(3) :455-475.
The Asymmetric Effects of a Common Monetary Policy in Europe

Guglielmo Maria Caporale Alaa M. Soliman 

Brunel University, London
Leeds Metropolitan University
Copyright ©2009 Journal of Economic Integration

This paper examines the monetary transmission mechanism in six EU member states. It provides useful empirical evidence for assessing the impact of a common monetary policy in the early stages of EMU, and enables us to form a view on how the regime change represented by EMU is likely to be translated into changes in policy multipliers in the various EU countries. The empirical analysis applies techniques recently developed by Wickens and Motto (2001) for identifying shocks by estimating a VECM for the endogenous variables, and a stationary VAR in first differences for the exogenous variables. Our findings suggest that there are significant differences between EU countries in the transmission mechanism of monetary policy.

JEL Classification: C32, E40

Keywords: monetary shocks | asymmetries | common monetary policy | identification | VECM | VAR
1. Arrowsmith, J., Barrell, R. and Taylor, C.(1999), Managing the Euro in a Tri-Polar World, in M. Artis and E. Hennessy(eds.), The Euro: a Challenge and Opportunity for Financial Markets, London: Routledge.
2. Bagliano, F. C. and C. A. Favero.(1998), "Measuring Monetary Policy with VAR Models: an Evaluation", European Economic Review, 42(6), pp. 1069-1112.
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