Under rational expectations, monetary policy is generally highly effective in stabilizing the economy. Aggregate demand management operates through the expectations hypothesis of the term structure: Anticipated movements in future short-term interest rates control current demand. This paper...

Under rational expectations, monetary policy is generally highly effective in stabilizing the economy. Aggregate demand management operates through the expectations hypothesis of the term structure: Anticipated movements in future short-term interest rates control current demand. This paper...

This paper characterizes the transmission mechanism of monetary shocks across countries of the euro area, documents how this mechanism has changed with the introduction of the euro, and explores some potential explanations. The factor-augmented VAR (FAVAR) framework used is sufficiently rich to...