The Monetary Transmission Mechanism in the Euro-Area : A VAR Analysis for Austria and Germany

With the transition to the European Monetary Union (EMU), the instrument of monetary policy for individual member countries has been abolished. This step has led to serious challenges for the different states to stabilize their economies to various economic shocks. Different labor market rigidities lead to different responses to monetary impulses in the countries. The paper deals with this problem by setting up a VAR system to investigate the different shocks on Germany and Austria. The results show that Germany experiences less fluctuation in growth and unemployment than Austria, which can be assigned to its higher labor market rigidities