Abstract:
We provide some evidence consistent with a heterogeneous credit channel of monetary
policy transmission in the European Union. Using the techniques of cointegration and
Error Correction Models, we have shown that the external finance premium is one
important leading indicator of real economic activity in some EU countries, namely,
Denmark, Finland, Ireland, Italy and the Netherlands. No evidence is found for
Belgium, France, Germany and the UK. These findings imply that a common
monetary policy implemented by the European Central Bank might be transmitted in
different ways across the member countries of the monetary union, thus exacerbating
existing regional disparities among the member countries.
