Heterogeneity and Monetary Policy Within the EMU
(2024) NEKN01 20241Department of Economics
- Abstract
- This paper studies heterogeneity in the euro area transmission mechanism as dependent on financial development. The topic is interesting, and research on it may provide answers to questions such as how member states can reduce their inflation rate. The hypothesis is that responses of inflation and output to discretionary monetary policy are larger in member states with a higher level of financial development. This hypothesis is intertwined with endogeneity, and monetary policy shocks are therefore estimated, which is done with a structural VAR. Two variables for financial development - one continuous and one indicator - are used to examine the hypothesis. When the continuous variable is used, there is more evidence for the hypothesis among... (More)
- This paper studies heterogeneity in the euro area transmission mechanism as dependent on financial development. The topic is interesting, and research on it may provide answers to questions such as how member states can reduce their inflation rate. The hypothesis is that responses of inflation and output to discretionary monetary policy are larger in member states with a higher level of financial development. This hypothesis is intertwined with endogeneity, and monetary policy shocks are therefore estimated, which is done with a structural VAR. Two variables for financial development - one continuous and one indicator - are used to examine the hypothesis. When the continuous variable is used, there is more evidence for the hypothesis among member states with a high level of financial development. The indicator is successful in identifying parts of the heterogeneity in the transmission mechanism, but far from all. Results from this study show the latest responses of inflation and output and are relevant from a policy- and future research perspective. Drawn conclusions are that the transmission mechanism is heterogeneous - especially when it comes to inflation, time dependent, and conditional on financial development. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9157668
- author
- Govenius, Fredrik LU
- supervisor
- organization
- course
- NEKN01 20241
- year
- 2024
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- EMU, Transmission mechanism, Impulse response functions, Heterogeneity, Financial development
- language
- English
- id
- 9157668
- date added to LUP
- 2024-10-01 13:05:58
- date last changed
- 2024-10-01 13:05:58
@misc{9157668,
abstract = {{This paper studies heterogeneity in the euro area transmission mechanism as dependent on financial development. The topic is interesting, and research on it may provide answers to questions such as how member states can reduce their inflation rate. The hypothesis is that responses of inflation and output to discretionary monetary policy are larger in member states with a higher level of financial development. This hypothesis is intertwined with endogeneity, and monetary policy shocks are therefore estimated, which is done with a structural VAR. Two variables for financial development - one continuous and one indicator - are used to examine the hypothesis. When the continuous variable is used, there is more evidence for the hypothesis among member states with a high level of financial development. The indicator is successful in identifying parts of the heterogeneity in the transmission mechanism, but far from all. Results from this study show the latest responses of inflation and output and are relevant from a policy- and future research perspective. Drawn conclusions are that the transmission mechanism is heterogeneous - especially when it comes to inflation, time dependent, and conditional on financial development.}},
author = {{Govenius, Fredrik}},
language = {{eng}},
note = {{Student Paper}},
title = {{Heterogeneity and Monetary Policy Within the EMU}},
year = {{2024}},
}