Sources of Asymmetric Monetary Transmission in Europe

Abstract

The macroeconomic model in the introduction simply postulated that aggregate demand in the EMU member countries responds instantaneously and differently to changes in short-term interest rates. The channels of monetary transmission are definitely more complex than this specification suggests.¹ Furthermore, it leaves unexplained which structural features in the EMU member countries contribute to the differences in the interest sensitivity of aggregate demand. This chapter provides a systematic account of individual channels of monetary transmission and evaluates their partial impact on the strength of monetary transmission. Empirical evidence on these individual channels of transmission across some or all EMU member countries is then presented in order to assess their importance as a source of asymmetric monetary transmission in Europe.