Measuring Euro Area Monetary Policy Transmission in a Structural Dynamic Factor Model

The authors study the effects of euro area common monetary policy by means of a structural dynamic factor model estimated on a large panel of euro area quarterly series. While the authors estimate a flat response of prices to a monetary policy shock, which the authors explain as aggregation of heterogeneous country-specific responses, the authors find no relevant asymmetries between countries in terms of output reaction. However, for both Spain and Italy, the authors find asymmetries in consumption, investment and unemployment. The introduction of the single currency in 1999 has helped reducing asymmetries in price responses but not in consumption and investment.