The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and United States
Abstract: We revisit recent evidence on how monetary policy affects output and prices in the U.S. and in the euro area. The response patterns to a shift in monetary policy are similar in most respects, but differ noticeably as to the composition of output changes. In the euro area investment is the predominant driver of output changes, while in the U.S. consumption shifts are significantly more important. We dub this difference the output composition puzzle and explore its implications and several potential explanations for it.
Status: Published in Journal of money, credit, and banking, volume 35, no. 6, pt. 2, December 2003
Provider: Federal Reserve Bank of Cleveland
Part of Series: Proceedings
Publication Date: 2003