NBER Summer Institute 2001 The Eurosystem Monetary Transmission Network Progress Report What is the “Eurosystem”: • ECB + National Central Banks (NCBs) • Joint monetary policy decisions • Decentralised monetary policy operations What is the “Monetary Transmission Network (MTN)”: • Group of researchers from ECB+NCBs • Common questions on monetary policy transmission • Pool data (when possible) and knowledge Why “Progress Report”: • Work is still underway • Conference in December 2001 Why are we here at NBER: • Discuss our research; receive feedback on its future directions The euro area: basic data 1. Euro area and the rest of the world Euro US Japan UK area Population (million) 292.2 272.9 126.5 58.7 Share of world GDP (%) 15.8 21.9 7.6 3.2 Composition of output (1998) Agriculture 2.6 1.6 1.8 1.2 Industry 28.6 27.3 36.4 27.8 Services 68.7 71.1 61.9 70.9 (Exports + Imports) /2 16.6 11.8 9.9 26.7 Bank assets 180.8 98.8 155.1 124.9 Corporate debt securities 7.4 31.2 18.4 11.0 Stock market capitalisation 90.1 192.9 111.5 210.2 Unemployment (end-2000) 8.5 4.0 4.9 5.1 Government expenditure 49.1 31.9 39.9 40.3 Unless stated otherwise: percent of GDP; year 1999 2. Euro area and some member countries Euro D F I E IRL P FI area Population (million) 292.2 82.1 59.1 57.3 39.4 3.7 10.0 5.2 Share of world GDP (%) 15.8 4.7 3.3 3.1 1.8 0.2 0.4 0.3 Composition of output (1998) Agriculture 2.6 1.2 3.1 3.0 4.2 5.4 3.9 3.7 Industry 28.6 30.9 25.3 29.1 29.5 41.4 33.5 32.3 Services 68.7 67.9 71.3 67.9 66.3 53.2 62.7 63.9 (Exp. + Imp.) /2 - Total 16.6 28.9 24.8 24.5 28.2 80.6 35.2 33.3 (Exp. + Imp.) /2 - Non-Euro area 16.6 13.0 10.5 9.4 8.1 41.6 8.8 18.1 Bank assets 180.8 194.9 180.2 122.2 144.7 270.0 223.5 85.5 Corporate debt securities 7.4 0.7 7.6 1.0 4.5 7.5 10.3 5.9 Stock market capitalisation 90.1 72.0 111.1 66.0 76.9 80.7 65.2 288.4 Unemployment (end-2000) 8.5 7.7 8.8 10.0 13.5 3.8 3.9 9.4 Government expenditure 49.1 49.0 55.3 50.0 40.2 33.8 43.3 52.1 Unless stated otherwise: percent of GDP; year 1999 D = Germany; F = France; I = Italy; E = Spain; IRL = Ireland; P = Portugal; FI = Finland The European Central Bank (ECB) and its policy • The ECB policy is decided by a Council • Council: 18 = 6 (Board) + 12 (NCB Governors) • The primary goal is price stability • ECB decisions are based on a publicly available “strategy” (framework for policy decisions) • See: www.ecb.int Goals of the MTN project: • Obtain further evidence on the total effect of monetary policy on output and prices • Analyse channels of transmission • Analyse sectoral/geographical (country) distribution and asymmetries Why are we interested in the transmission channels? • Help understand the total effects • Help identify market rigidities, distortions and may signal the need for structural reform Why are we interested in the role of banks? • Banks are key to the EU financial system • Banking policies are national • Possible asymmetries What we present today: • “The Identification and Transmission of Monetary Policy in the Euro Area” • “Monetary Transmission in Euroland; the Role of Banks” • The Transmission of Monetary Policy to Non-Financial Firms in the Euro Area (outline)