Title: Analyzing asymmetric effects of monetary policy in the Euro Area
Authors: Catalina Martinez Hernandez - Freie Universitaet Berlin/ DIW Berlin (Germany) [presenting]
Anton Velinov - DIW Berlin (Germany)
Abstract: After the introduction of the Euro in 1999, one of the main challenges of the European Central Bank (ECB) is to design common monetary policy among a group of countries that are heterogeneous. We assess the different responses of main macroeconomic and financial variables from eleven countries of the Euro Area (EA) to a contractionary monetary policy shock. We consider a Factor Augmented Vector Autoregression (FAVAR) in order to analyze responses in a data-rich environment. In particular, we focus on the reaction of inflation expectations of each country since it is a key component in the planning of monetary policy and in evaluating the credibility of the ECB. We obtain significant differences in the responses of real variables, inflation and inflation expectations between core and periphery countries.