WORK IN PROGRESS
WORK IN PROGRESS
with João B. Duarte (2024 ECB’s Lamfalussy Fellow)
The risk that fragmented financial markets represent to a uniform transmission of monetary policy motivated a close monitoring of the state of financial integration in the Euro Area. We attempt to provide evidence of the relationship between financial integration and monetary transmission mechanism. We compute impulse responses to a monetary shock for different levels of financial integration using local projections on panel data comprising each member state and subsamples. Our preliminary findings show a negative response of inflation and output to a tightening monetary policy under a high level of financial integration. In contrast, the impulse responses to the same shock are close to null under a low level of financial integration. These findings suggest that the fragmentation of the financial system affects the effectiveness of the European Central Bank's policy actions.
with Tiago Bernardino, Pedro Brinca, Ana Melissa Ferreira, Hans Holter and Luís Teles Morais
How does monetary policy affect household portfolio composition? Resorting to highly granular data on the balance sheets of Norwegian households from 2004 to 2016, we analyze how their wealth portfolios change in response to well-defined monetary policy shocks. Our findings indicate that the share of wealth invested into risky assets increases, and the liquidity of their portfolios increases, after an unexpected rise in the interest rate. Our data, covering the whole Norwegian population, allows us to explore the heterogeneity of these responses in depth. We look at how this response differs across the wealth distribution and over the life cycle, and also focus on specific groups such as credit-constrained households. We find that the aggregate results are driven mainly by wealthier, middle-aged segments of the population.