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Über dieses Buch

The euro and the ESCB have started in January 1999 and there is naturally a wide-ranging interest in academia and among policymakers in OECD coun­ tries, how successful European Monetary Union will and can be. EMU has started with 11 countries and experienced a rapid depreciation of the cur­ rency. With so many EU countries joining for a historical monetary union in a period of economic globalization, international financial market changes and ongoing EU enlargement the problem of monetary policy efficiency becomes crucial; especially as so many countries in the EU still have high unemploy­ ment rates and the euro has just started at the beginning of a cyclical upswing in the euro zone. Monetary policy is also quite crucial, because the Maastricht convergence criteria severely restrict the scope of national fiscal policy. With a very limited stock of valuable European monetary experience which could be usefully exploited by the ECB and the ESCB respectively, one naturally will appreciate advanced economic modeling of the main issues. This book takes an analytical look at the problem of asymmetric monetary transmission in Euroland. Facing the ECB's monetary policy, individual mem­ ber countries are likely to experience different policy effects. Countries differ in their financial structure -a well-known argument in the literature -but also in the characteristics of goods and labor markets. The latter fields have been somewhat neglected in the literature but receive broad analytical attention here.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract
After several decades of efforts to introduce a common currency in Europe, European economic and monetary union (EMU) has finally been launched in 1999. This historic project has been accompanied by a lively debate over the costs and benefits of monetary integration. Asymmetries enter this discussion in various dimensions: They may be related to the goals of policy, to the instruments of policy, to the nature of disturbances and to the underlying macroeconomic structure.
Volker Clausen

Chapter 2. 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.
Volker Clausen

Chapter 3. Financial Structure and Asymmetric Monetary Transmission: Implications of a Differential Role of Asset Markets

Abstract
In Chapter 2, asymmetries in financial structure were used to explain why the interest rate channel differs across the EMU member countries. In some countries, like Germany or France, long-term interest rates appear to influence aggregate demand whereas in other countries, like Italy, short-term interest rates are considered to be very important. This reflects differences in the borrowing pattern of the private sector. In Germany and France, borrowing is primarily long-term, while in Italy short-term borrowing dominates. These differences in the nature of interest rate transmission are also identified in econometric estimates of consumption and investment equations (De Bondt et al. (1997)).
Volker Clausen

Chapter 4. Financial Structure and Asymmetric Monetary Transmission: Implications of a Differential Interest Elasticity of Aggregate Demand

Abstract
The ECB’s conduct of the common European monetary policy raises the question whether the interest rate transmission mechanism works symmetrically across the member countries. The simple model in the introduction illustrated how asymmetries in interest rate transmission across the EMU member countries affect the ECB’s policy-making and the macroeconomic implications of symmetric or asymmetric shocks for the individual member countries taking account of the reaction function of the ECB. The setup was extremely simple and neglected, for example, the interaction between EMU and the rest of the world.
Volker Clausen

Chapter 5. Financial Structure, Asymmetric National Money Demand Functions and the Stability of European Money Demand

Abstract
Differences in financial structure across the EMU member countries easily lead to asymmetric national money demand functions in Europe. The range of (near-money) assets offered by the national banking systems to the public and differences in the passthrough of central bank rates to deposit rates affect the portfolio allocation by the public. From the perspective of the ECB, these differences in national money demand functions are less important than the behavior of aggregate European money demand. The latter affects the choice of the monetary strategy by the ECB.
Volker Clausen

Chapter 6. Asymmetric Degrees of Openness and Monetary Transmission in Europe

Abstract
As outlined in Chapter 2, asymmetries in the degrees of openness may also explain why EMU member countries behave differently in response to the common monetary policy by the ECB. Monetary policy is widely expected to have a stronger impact on output, the more open the economy is toward the rest of the world.1 Against this background, this chapter systematically explores in a theoretical model of a monetary union the role of asymmetric degrees of openness.
Volker Clausen

Chapter 7. Asymmetric Wage-Price Mechanisms and Monetary Transmission in Europe

Abstract
Differences in wage-price mechanisms provide another potential source of asymmetric monetary transmission in Europe. Wage and price setting behavior represent the supply side of the European economies and determine to what extent changes in aggregate demand feed into output and prices. As a consequence of asymmetric wage-price mechanisms, the common monetary policy of the ECB might lead in some member countries to stronger output or price effects than in others. This chapter investigates whether the presence of supply side asymmetries might even lead to qualitative cyclical differences in the response to the common monetary policy.
Volker Clausen

Chapter 8. Empirical Evidence on Asymmetric Monetary Transmission in Europe

Abstract
The theoretical models in the previous chapters illustrated that the partial sources of asymmetric monetary transmission in Europe identified in Chapter 2 do not easily map into differences in the overall strength of monetary transmission. This chapter reviews the empirical evidence on asymmetries in the overall effects of monetary policy in Europe. In view of the importance for the ECB policy-making, numerous studies have produced a large and quickly growing body of empirical evidence on asymmetric monetary transmission in Europe. While the following presentation and discussion provides an overview of different approaches and results, it concentrates on four countries: France, Germany and Italy as the most important EMU member countries, which taken together account for almost three quarters of aggregate European output and on the UK, which is the most important outsider.
Volker Clausen

Chapter 9. Monetary Policy in an Era of Structural Change

Abstract
Understanding the similarities and differences in the monetary transmission mechanism across the EMU member countries facilitates the design of the common monetary policy by the ECB. The more the channels of transmission differ in strength and in dynamic profile the more likely cyclical asymmetries across the EMU member countries are to occur in response to the common monetary policy. In these circumstances it is almost inevitable that some countries will disagree with the policy stance imposed by the independent ECB.
Volker Clausen

Backmatter

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