The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper examines monetary transmission in France using the vector autoregression methodology. Interest rates are decomposed into external and domestic components, and a nonrecursive contemporaneous structure is used to identify the system. Innovations in the external component are found to have a significant impact on economic activity, while innovations in the domestic premium have a statistically negligible effect, suggesting that interest rate hikes in defense of the franc may have had a smaller impact on the economy than usually thought. The paper also discusses some implications of Economic and Monetary Union and provides evidence concerning the importance of the credit channel in France.