Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/283494 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 252
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
The secular increase in globalization led to a substantial increase in the interconnectedness of global financial markets. This has important implications for the conduct of monetary policy, as central bank policies may diverge across countries, potentially affecting key transmission channels of domestic policy actions. In this paper, we use a non-linear multivariate time series model to shed light on how the US monetary policy stance affects the conduct of monetary policy in the euro area. We assume that the dynamic coefficients implicitly depend on a measure of the Federal Reserve's policy stance through a smooth transition function. This assumption allows us to examine how the dynamic responses of financial market quantities such as government bond yields and inflation swaps to euro area monetary policy shocks change with the US policy stance. Scenario-specific impulse responses show that the transmission of euro area monetary policy through financial markets does indeed depend on the prevailing monetary policy regime of the Federal Reserve and has significant effects on a variety of euro area variables.
Subjects: 
Monetary Policy Transmission
Financial Markets
Real Rates
High-Frequency Data
Smooth Transition VAR
JEL: 
E43
E52
F42
G12
Document Type: 
Working Paper

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