A GVAR-IV with High-Frequency Identication for Monetary Policy in the Euro Area with Mattias Almgren, John Kramer and Ricardo Lima
Abstract: We study the effect of common monetary policy shocks on Euro Area member countries. We use Global VAR model,identified using high-frequency movements in financial derivatives as proxy variables for the monetary policy surprise. Countries' responses to a common interest rate shock are heterogeneous, which we use to investigate the monetary transmission mechanism in the Eurozone. In particular, we show that the monetary policy has a bigger effect in economies with a larger share of Hand-to-Mouth households and that the housing channel has no effects. Finally, we build a HANK model in an small open economy that captures our empirical findings.
Abstract: We study the effect of common monetary policy shocks on Euro Area member countries. We use Global VAR model,identified using high-frequency movements in financial derivatives as proxy variables for the monetary policy surprise. Countries' responses to a common interest rate shock are heterogeneous, which we use to investigate the monetary transmission mechanism in the Eurozone. In particular, we show that the monetary policy has a bigger effect in economies with a larger share of Hand-to-Mouth households and that the housing channel has no effects. Finally, we build a HANK model in an small open economy that captures our empirical findings.
