Premium
THE BALANCE SHEET CHANNEL IN A SMALL OPEN ECONOMY IN A MONETARY UNION
Author(s) -
Sousa João,
Gameiro Isabel Marques
Publication year - 2013
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1464
Subject(s) - economics , balance sheet , rest (music) , shock (circulatory) , monetary policy , monetary economics , small open economy , government (linguistics) , credit channel , financial sector , finance , macroeconomics , inflation targeting , medicine , linguistics , philosophy , cardiology
This paper uses a two‐country VAR approach to study the transmission of monetary policy shocks in Portugal, focusing in particular on the financial decisions of households, corporations (financial/non‐financial), the government and the rest of the world. We find that a monetary policy shock has a contractionary effect on economic activity and increases the financing needs of households and non‐financial corporations. The financial sector plays an important role, supplying the necessary funds to these sectors and thus facilitating their adjustment to the shock. We do not find much evidence of a significant systematic behaviour of the government or the rest of the world in response to monetary policy shocks. Copyright © 2012 John Wiley & Sons, Ltd.