policy transmission channels, the possible determinants of different responses to a common
monetary shock. The main features of this approach are the following: First, measures of the
long-run response of output to a monetary shock are obtained (using one of the different
econometric techniques proposed in the literature, for example, VAR models); and, second,
using the obtained measures as endogenous variables, a multiple regression analysis is carried
out using as explanatory those related to differences in the monetary policy transmission
channels. The most important references in this research line are Carlino and DeFina (1998,
1999) who have analysed the case of the American States and of countries participating in
EMU. De Lucio and Izquierdo (1998) have also applied this methodology for the case of
Spanish regions.
Carlino and DeFina (1998) consider that asymmetries of monetary policy should be analysed
in the presence of a common monetary policy but usually the fact that every country has been
subjected to its own monetary shocks during the considered period is not taken into account
being this one of the main deficiencies of the first group of authors. In this sense, the analysis
of differences in monetary policy output response between European countries would be
especially difficult, as there is no available historical data. To solve this problem, Carlino and
DeFina (1998) extrapolate the evidence obtained for the American States (which have been
exposed to a common monetary policy for a long period and where important differences
were detected) to analyse the case of European countries. In particular, in a first step, they
identify the possible determinants of asymmetries for the American case using the previously
exposed methodology and the influence of these determinants on the long-run response of
output to a common monetary shock. In a second step, they combine the estimates of the
influence of these determinants with European data. The determinants of the differences in
output responses are related to the economic and financial structure of the considered
territories, which can be summarised as follows:
i. The industry-mix of the territory: The existence of different elasticities of the domestic
demand to changes in the interest rates can explain different responses of output to a
common monetary shock. For example, residential investment does not react to
changes in monetary policy in the same way as capital goods investment. This variable
is related to differences in the effectively of the interest rate channel in every territory;