Money and monetary policy transmissionin the euro area:evidence from FAVAR- and VAR approaches

This paper investigates the transmission of monetary policy in the euro area based onthe factor augmented vector autoregressive approach of Bernanke, Boivin and Eliasz(2005) as well as on a standard VAR model. We focus on the reaction of monetaryaggregates to a one-off monetary policy shock. We find that – as theory suggests –money growth is dampened by a restrictive monetary policy stance in the longer term.In the short-run, however, M3 growth may increase due to portfolio shifts caused by therise in the short-term interest rate. This has consequences for the interpretation ofmoney growth as an input for monetary policy decisions.[...] Barno Blaes