Asymmetric Transmission of Monetary Policy Shocks in the Euro Area: Evidence from a Panel VAR Analysis
Round 1
Reviewer 1 Report
Comments and Suggestions for Authors
Review of
“Asymmetric Transmission of Monetary Policy Shocks in the Euro Area: Evidence from a Panel VAR Analysis”
Submitted to Economies
Summary
This paper studies the dynamic effects of Euro-area monetary policy shocks on three country groups, identified as Core, Periphery and Central and Eastern European countries. The sample period spans from the first quarter of 2010 to the last quarter of 2024. The main aim is to uncover possible heterogeneity in the responses of selected macroeconomic variables among group countries. Indeed, the author(s) find evidence of heterogeneous effects in the transmission of common monetary policy shocks to countries in the different groups.
Comments
I believe that the paper deals with an important and interesting subject and uses an appropriate methodology, based on Bayesian Panel VAR model. Nonetheless, in my opinion there are some problems and shortcomings that need to be tackled before publication. In particular, I have found some incompleteness in the references to previous literature as well as inconsistencies both in part concerning the empirical investigation and in the related macroeconomic interpretation in the results. Below some specific comments are proposed.
1. The review of the relevant literature needs to be improved. For example on page 2 the following sentence is reported: “While previous studies have analysed the macroeconomic effects of monetary policy for the euro area as a whole, this paper contributes by focusing explicitly on the heterogeneous transmission of monetary policy shocks across countries.” The statement is incorrect as there are several important studies that have indeed focused on the heterogeneity of the responses of euro-area countries macroeconomic variables to common Euro-area monetary policy shocks. A partial list includes at least the following papers:
Barigozzi, Conti, Luciani (2014) “Do euro area countries respond asymmetrically to the common monetary policy?” Oxford Bulletin of Economics and Statistics 76(5), 693-714.
Georgiadis (2015) “Examining asymmetries in monetary policy transmission in the Euro Area: Evidence from a mixed cross-section Global VAR Model”. European Economic Review 75, 195-215.
Cavallo, Ribba (2015) “Common macroeconomic shocks and business cycle fluctuations in Euro area countries”. International Review of Economics and Finance 38, 377-392.
2. In my view, the authors should provide a more thorough explanation for their decision to exclude the first ten years of the Monetary Union ─ specifically, the period from 1999 to 2009 ─ from their empirical analysis. It is worth noting that, by doing so, they are not taking into account the period that includes the so-called Great Recession.
3. On page 10-11: “Particular attention is given to output and labour-market dynamics because these variables represent the primary channels through which monetary policy affects real economic activity…”
It is unclear why the authors do not present and discuss results regarding the dynamic effects of monetary policy shocks on prices and inflation, given that they claim that the Harmonized Index of Consumer Prices is included in the Panel VAR specification. After all, asymmetries could also concern the response of prices and inflation.
4. Another unclear point concerns the nature of the monetary policy shock: expansionary or contractionary? Looking at Figure 4.1, the GDP responses seem to point to an expansionary monetary policy shock. However, the responses of employment in the different groups seems instead associated with a contractionary monetary policy shock. I believe that the authors should clarify and carefully discuss this point.
5. The robustness analysis conducted on three subperiods is questionable given the very short sample periods examined. This point, too, warrants further discussion. I must add that, in this case, the authors do not report the impulse response functions, but I assume they are highly imprecise.
6. On page 17: “The results also highlight the importance of coordination between monetary and fiscal authorities during periods of elevated uncertainty.” This appears to be more of a general observation than an implication of the main findings of this study.
Comments for author File: 
Comments.pdf
Author Response
Response to Reviewer 1
Manuscript ID: economies-4380648
Asymmetric Transmission of Monetary Policy Shocks in the Euro Area: Evidence from a Panel VAR Analysis
Economies (MDPI)
We are grateful to the reviewer for the care taken with the manuscript and for the constructive comments, which have strengthened the paper. Our replies follow, each below the comment it addresses (comments in italics). Changes are highlighted in the revised manuscript, and section, table, and figure numbers refer to that version.
Comment 1. The review of the relevant literature needs to be improved; the claim of novelty regarding the heterogeneous transmission of monetary policy is incorrect, as several studies (Barigozzi, Conti and Luciani, 2014; Georgiadis, 2015; Cavallo and Ribba, 2015) have already addressed it.
Response. The claim was indeed too strong, and we have corrected it. The Introduction no longer presents the heterogeneity of transmission as new ground; it now situates the paper within the established literature and cites the three studies the reviewer lists, each of which is discussed in Section 2. What we keep as the contribution is deliberately narrower: the pairing of externally identified high-frequency surprises with an explicit Core–Periphery–CEE grouping and a regime-specific analysis, over an extended post-crisis sample. The three references have been added to the bibliography.
Comment 2. The authors should provide a more thorough explanation for excluding the period 1999–2009, which includes the Great Recession.
Response. Section 3 now sets out the reasoning. Two considerations drive the 2010 start date. Several CEE members adopted the euro only around or after 2009 (Estonia in 2011, Latvia in 2014, Lithuania in 2015), so their exposure to a common monetary policy can be studied meaningfully only from about that point; and beginning in 2010 keeps the 2008–2009 global financial crisis—a global disturbance with its own dynamics—separate from the euro-area transmission we are trying to isolate, while aligning the sample with the three policy regimes examined later. The exclusion is a design choice, not a data limitation.
Comment 3. It is unclear why the authors do not present results on prices and inflation, given that the HICP is included; asymmetries could also concern prices.
Response. Inflation is now reported. Table 2 gives the peak HICP responses with 68% and 90% credible intervals for all three groups, and Section 4.1 discusses them. The response is negative and significant for the Periphery and indistinguishable from zero for the Core and CEE. The Periphery result is informative in its own right: output, employment, and prices decline together, a pattern we read—consistently with the rest of the paper—as central bank information effects rather than conventional transmission.
Comment 4. The nature of the shock is unclear: the GDP responses appear expansionary, while the employment responses appear contractionary. This should be clarified and discussed.
Response. This prompted us to state the sign convention explicitly and to sharpen the interpretation. Section 3 now specifies that a positive shock is an expansionary (accommodative) surprise. As for the apparent contradiction: the full-sample employment responses are not distinguishable from zero, so their negative point estimates carry no directional information—we now say this plainly in Section 4.1, and the divergence is therefore estimation noise rather than a genuine sign conflict. Where a reversed sign is both significant and internally coherent—the Periphery, where an expansionary surprise coincides with lower output, employment, and prices—we attribute it to information effects (Jarociński and Karadi, 2020; Jarociński, 2022): a surprise that looks accommodative but conveys adverse news about the outlook depresses activity and prices together.
Comment 5. The robustness analysis over three subperiods is questionable given the very short samples, and the impulse responses are not reported and are presumably imprecise.
Response. We share the concern and have added a caveat at the start of Section 4.2 flagging the regime results as indicative rather than precise. The imprecision the reviewer anticipates is already on display: the regime-specific credible intervals in Tables 3 and 4 include zero for most regimes, which is how that uncertainty surfaces. Full impulse-response plots per regime are omitted for space, but the intervals carry the same information, and we read nothing into any regime beyond the single robust case, the Periphery in 2010–2014.
Comment 6. The statement on page 17 regarding monetary–fiscal coordination appears to be a general observation rather than an implication of the findings.
Response. The passage has been rewritten to follow from the results. It now points to the marked widening of the credible intervals in the pandemic-and-tightening regime—the window in which monetary policy operated alongside large fiscal interventions—and draws the implication that the shock is harder to isolate when the two act together, so effectiveness assessments in such episodes should take the fiscal stance into account.
We believe these revisions address the reviewer’s comments in full, and we hope the manuscript is now suitable for publication.
Author Response File: Author Response.pdf
Reviewer 2 Report
Comments and Suggestions for Authors
This paper uses a Bayesian Vector Autoregression to study the response of European countries to monetary shocks. The primary result is countries on the periphery have a stronger and more varied response. The result is unsurprising, but the methodology is sound, and the results add value.
There are some results that need to be added and presentation issues to be addressed:
1) There seems to be a formatting problem with the subsection 2.3 heading.
2) The text should clearly state the data variables in the vector yit . This is done in the appendix, but that should be moved and the ordering of the variables should be clear.
3) The prior distributions should be clarified beyond a "Minnesota prior." Presumably these are the distributions on the uit 's with mean zero and declining variance. This should be specified mathematically in the text.
4) Granger causality results should be reported. The impact of the monetary policy shock can be more clearly determined. This will necessitate mathematical specification of what shock is affecting what variable.
5) Tables 4.1, 4.2 etc. should be labeled correctly with the full number.
6) Report the estimation results for the full sample and the effects on inflation. If nothing is significant, you can state that in the text without a table.
7) Some of the impulse response graphs do not appear to be reverting to zero. Is this due to a short horizon on the graph or is there a more substantive reason?
Author Response
Response to Reviewer 2
Manuscript ID: economies-4380648
Asymmetric Transmission of Monetary Policy Shocks in the Euro Area: Evidence from a Panel VAR Analysis
Economies (MDPI)
We thank the reviewer for recognising the soundness of the methodology and for the constructive suggestions, which we address below (comments in italics). Changes are highlighted in the revised manuscript, and section, table, and figure numbers refer to that version.
Comment 1. There appears to be a formatting problem with the subsection 2.3 heading.
Response. Fixed. The Section 2.3 heading (“Effects of Monetary Shocks”) now carries the correct number and heading style, matching Sections 2.1 and 2.2.
Comment 2. The text should clearly state the data variables in the vector y_it, including their ordering; this is currently done only in the appendix.
Response. The vector and its ordering now appear in the main text where the model is set up (Section 3): y_it = (mp_t, gdp_it, emp_it, gov_it, gfcf_it, hicp_it)′, with the monetary surprise ordered first, followed by GDP, employment, government expenditure, investment, and the HICP.
Comment 3. The prior distributions should be clarified beyond a ‘Minnesota prior’ and specified mathematically in the text.
Response. Appendix A now gives the prior in full, with a compact version in Section 3. The innovations are Gaussian, u_it ~ N(0, Σ_i). The Minnesota prior is diagonal, with variance (λ₁ / l^{λ₃})² on own lags and (λ₁λ₂σ_m / (l^{λ₃}σ_k))² on cross-variable lags, calibrated at λ₁ = 0.1, λ₂ = 0.5, λ₃ = 0.5, with a diffuse prior on the intercepts. The hierarchical layer—country coefficients drawn around a common mean—is written out as well.
Comment 4. Granger causality results should be reported, and the specification of what shock is affecting what variable should be made explicit.
Response. Two additions cover this. The identification in Section 3 now states explicitly that the structural shock is the innovation to the first equation of the recursively ordered system, in the internal-instruments (proxy-SVAR) sense. And a new Section 4.4, with Table 5, reports panel Granger tests: the macroeconomic variables do not jointly Granger-cause the surprise in any group, which supports treating it as predetermined, and the forward coefficients carry the same signs as the impulse responses. Because the surprise is common across countries, we use standard errors clustered by time period, and we discuss openly how the Granger evidence relates to the Bayesian results—the former a directional check, the latter the primary, system-based estimates.
Comment 5. Tables 4.1, 4.2, etc. should be labelled correctly with the full number.
Response. Done. Tables and figures are numbered sequentially (Tables 1–5, Figures 1–2), and every in-text reference has been updated to match.
Comment 6. Report the full-sample estimation results and the effects on inflation; if nothing is significant, this can be stated in the text without a table.
Response. Reported, as described under Reviewer 1’s third comment. The full-sample inflation responses are in Table 2 and Section 4.1. Since the Periphery response is significant, we present the results in the table rather than in prose alone.
Comment 7. Some impulse response graphs do not appear to be reverting to zero; is this due to a short horizon or a more substantive reason?
Response. It is substantive, and Section 4.1 now addresses it. With the variables in log-levels the systems are highly persistent. The posterior of the largest companion eigenvalue modulus has median 0.987 (Periphery), 1.012 (CEE), and 1.013 (Core), with 90% intervals that straddle unity in all three cases—so the data point to a largest root at or near one, as is usual for macroeconomic variables in levels, not to genuine explosiveness. That near-unit-root persistence, not misspecification, is why the responses fade only gradually over the horizon shown. We now state this and note that inference is read over business-cycle horizons, with the shrinkage prior stabilising the short-sample estimates.
We believe these revisions address the reviewer’s comments in full, and we hope the manuscript is now suitable for publication.
Author Response File: Author Response.pdf
Reviewer 3 Report
Comments and Suggestions for Authors
My comments on the paper – Asymmetric Transmission of Monetary Policy Shocks in the 2 Euro Area: Evidence from a Panel VAR Analysis- are as follows.
The content of the paper is clear, arouses interest and responds to the objective pursued by the author.
The title of the paper is clear. The abstract is clear, presents the purpose of the paper and main results. The keywords are appropriately chosen.
The whole content of the paper has a logical flow, while the concluding remarks are in full concordance with the approached subject. The research methodology used by the author is adequate for the approached subject.
The structure of the paper is appropriate and the analysis undertaken by the author is clear.
The conclusions are significant and result from the undertaken research.
The author mentions the limitations of the analysis carried out in his paper.
The references used by the author are appropriate.
The introduction provides the necessary background information and states the added value of the paper. However, we recommend explicitly mentioning the research objective in the introduction section.
The section number 2.3 should be inserted at line 203. The title of this section is Effects of Monetary Shocks .
There is no need to insert the list of tables and figures on lines 27-36. We recommend deleting these lines.
We recommend the development of the discussions in section 4 (Empirical Results). The author should indicate whether the study results are in line with other studies. We recommend that the results obtained from the study should be compared with the results obtained in the case of similar researches from the academic literature.
Author Response
Response to Reviewer 3
Manuscript ID: economies-4380648
Asymmetric Transmission of Monetary Policy Shocks in the Euro Area: Evidence from a Panel VAR Analysis
Economies (MDPI)
We thank the reviewer for the positive evaluation and the helpful suggestions, which we have implemented as described below (comments in italics). Changes are highlighted in the revised manuscript, and section, table, and figure numbers refer to that version.
Comment 1. We recommend explicitly mentioning the research objective in the introduction.
Response. An explicit objective now appears in the Introduction: to assess whether, and how far, the transmission of common ECB shocks differs across the Core, Periphery, and CEE groups and across monetary policy regimes.
Comment 2. Section 2.3, titled ‘Effects of Monetary Shocks’, should be inserted at the appropriate location.
Response. Corrected: the heading now reads “2.3. Effects of Monetary Shocks” with proper formatting, and the stray number has been removed from the body text.
Comment 3. The list of tables and figures should be deleted.
Response. Removed, in line with the journal’s formatting.
Comment 4. The discussion in Section 4 should be developed, and the results compared with those of similar studies.
Response. Section 4 has been expanded, including a new paragraph in Section 4.1 that sets our results against the literature: the Core–Periphery precision contrast against Barigozzi et al. (2014) and Georgiadis (2015), the crisis-era Periphery sensitivity against Ciccarelli et al. (2013), and the Periphery sign reversal against the information-effects work of Jarociński and Karadi (2020) and Jarociński (2022). We also indicate where the regime dimension adds something the earlier studies do not.
We believe these revisions address the reviewer’s comments in full, and we hope the manuscript is now suitable for publication.
Author Response File: Author Response.pdf
Round 2
Reviewer 1 Report
Comments and Suggestions for Authors
I have no further comments for the authors
Reviewer 2 Report
Comments and Suggestions for Authors
The authors have responded to the recommendations more than sufficiently.
