Journal of Money, Credit and Banking

Publication date: 2008-01
Volume: 40 Pages: 505 - 521
ISSN: 0022-2879, 1538-4616
Publisher: Ohio State University Press


Sahuc, JG
Smets, Frank


1402 Applied Economics, 1502 Banking, Finance And Investment, 1401 Economic Theory, Economics


Using two estimated models for the euro area and the United States, this paper investigates whether the observed difference in the amplitude of the interest rate cycle since 1999 in both areas is due to differences in the estimated monetary policy reaction function, differences in the structure of the economy or differences in the size and nature of the shocks hitting both economies. The paper concludes that differences in the type, size and persistence of shocks in both areas can largely explain the different interest rate setting. Copyright (c)2008 The Ohio State University.