A0646
Title: Hawks vs. Doves: Monetary policy effectiveness in light of diverging national policy stances
Authors: Thomas Zoerner - Vienna University of Economics and Business (Austria) [presenting]
Florian Huber - University of Salzburg (Austria)
Niko Hauzenberger - University of Strathclyde (United Kingdom)
Abstract: The secular increase in globalization led to substantial increases in the connectedness between global financial markets. This has important implications for the conduct of monetary policy, since central bank policies might diverge across countries, hampering key transmission channels of domestic policy actions. We develop a non-linear multivariate time series model to shed light on how US monetary policy affects the conduct of monetary policy in the Euro area (EA). Based on a smooth transition model, we assume that dynamic coefficients implicitly depend on proxies of unexpected US monetary policy shocks. This assumption allows us to investigate how dynamic responses of high-frequency quantities such as government bond yields and inflation swaps to EA monetary policy shocks change if the Federal Reserve unexpectedly changes its monetary policy stance. Carrying out scenario-specific impulse responses shows that EA monetary policy transmission strongly depends on the monetary policy stance of the Federal Reserve and has sizeable effects on a variety of euro area variables.
