Has the transmission mechanism of European monetary policy changed in the run-up to EMU?

This paper studies empirically the transmission mechanism of European monetary policy by means of time-varying, heterogeneous coefficient models estimated in a numerical Bayesian fashion. Based on pre-European Monetary Union evidence from Germany, France, Italy, and Spain, we find that (i) the long-run cumulative impact on output of a common, homoskedastic monetary policy shock has decreased in all countries after 1991. These declines are statistically significant and accompanied by some changes in the conduct of monetary policy over the same period. At the same time, we also find that (ii) cross-country differences in the effects of this shock have not decreased over time.