Are there asymmetries in euro area monetary policy transmission?

2026-09-29

AI Summary

This study investigates the asymmetry of monetary policy transmission in the euro area. To address the frequency mismatch between monthly macro-financial data and quarterly bank survey data, it innovatively combines a nonlinear mixed-frequency vector autoregression (MIDAS-VAR) with Bayesian additive regression trees (BART) for estimation, thereby precisely identifying the dynamic response characteristics of policy shocks. The findings reveal that the transmission effects of contractionary policies align with theoretical expectations, whereas the impact of expansionary policies is statistically insignificant. Furthermore, the peak effects of policy shocks are significantly contingent upon initial economic conditions. This research offers a novel methodological perspective and empirical evidence for evaluating heterogeneous monetary policy effects within a nonlinear framework.

Abstract

We answer the question posed in the title with a nonlinear mixed-frequency vector autoregression, estimated with Bayesian additive regression trees. The model combines monthly macro-financial variables with quarterly bank lending survey data, and identifies the dynamic responses from high-frequency policy surprises. Sign asymmetry dominates; a tightening produces monetary policy transmission mostly in line with the theoretical predictions, whereas easing of any size produces mostly insignificant responses. Peak effects vary with initial conditions, while several common, predefined regime splits do not yield considerable differences in the propagation of the shocks.

Problem

• monetary policy transmission
• asymmetry
• euro area
• sign asymmetry

Innovation

• Nonlinear mixed-frequency VAR
• Bayesian additive regression trees
• Monetary policy transmission
• Sign asymmetry
• High-frequency identification