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The Monetary Transmission in the US and the Euro Area: Common Features and Common Frictions
E31 - Price Level; Inflation; Deflation
E32 - Business Fluctuations; Cycles
E41 - Demand for Money
E44 - Financial Markets and the Macroeconomy
E50 - General
This paper compares the monetary transmission mechanism in the US and the 3 largest economies of the euro area. We start by showing that the dynamic responses to a monetary policy shock in each of the four countries are analogous. A model with a small set of frictions that broadly accounts for these responses is then presented. The model incorporates nominal wage contracts, habits for preferences in consumption and the staggered adjustment of households. portfolios. A common characterization of the monetary transmission mechanism in the US and the main euro area countries is therefore attainable.