International transmission of monetary shocks to the Euro area: Evidence from the U.S., Japan and China

•SVAR models are used to examine international monetary transmission to the Euro area.•We examine the effect of monetary shocks in the U.S., Japan and China on the Euro area.•China's M2 increase raises commodity prices and Euro area inflation and growth.•Japan's M2 increase appreciates the Euro and decreases Euro area growth and exports.•U.S. monetary aggregates have small effects on Euro area variables over 1999-2011.

The aim of this paper is to examine the influence of monetary aggregate shocks in the U.S., China and Japan on the Euro area between 1999 and 2012. There are marked differences in the effect of increases in monetary aggregates in China, Japan and the U.S. on Euro area economic and financial variables over 1999-2012. Increases in monetary aggregates in China are associated with significant increases in the world price of commodities and with increases in Euro area inflation, industrial production and exports. Results are consistent with shocks to China's M2 facilitating domestic growth with expansionary consequences for the Euro area economy. In contrast, increases in monetary aggregates in Japan are associated with significant appreciation of the Euro and decreases in Euro area industrial production and exports. Production of goods highly competitive with European goods in Japan and expenditure switching in Japan are consistent with the results. U.S. monetary expansion has relatively small effects on the Euro area over this period compared to results reported in the literature for earlier sample periods.