The implementation of monetary policy in the Euroarea, United Kingdom and USA : Evidence from financial crisis period
Part of : MIBES Transactions : international journal ; Vol.7, 2013, pages 110-120
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Pages:
110-120
Author:
Abstract:
This paper examines the monetary policy implementation before during and after the financial crisis for USA, UK and selected Eurozone countries. The empirical approach we follow is the Vector Error Correction model based on time series approach which examines analytically the monetary policy transmission mechanism. According to our results, the Euroarea monetary authorities are more inflation targeted comparing to USA and UK in the application of monetary policy strategy. Also, the analysis showed relatively high degree of European bond market integration before the crisis outbreak. We imply a structural break on our analysis for crisis period to examine the effect of the global market turbulence on monetary policy implementation. As we observed, the financial crisis distorted significantly the transmission channel and revealed different responses by central banks. However, the expansionary monetary strategy based on the implementation of unconventional measures prevented from an extended output contraction. Finally, we use some key macroeconomic variables to perform a comparison between the countries set and the Germany. Our results were significantly different from benchmark VEC framework indicating the existence of heterogeneity in the countries sample. So, the monetary authorities have to continue the use of unconventional measures to absorb the crisis repercussions, avoiding the fiscal expansion which deteriorated the market turmoil and results in increased debt level for the Eurozone countries.
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Subject (LC):
Keywords:
monetary policy, central banks, VEC, financial crisis
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