This section provides a summary des

This section provides a summary description of the data employed in the empirical analysis.
A detailed description can be found in Section C of the Appendix. All variables are in natural
logarithms and measured at constant prices unless stated otherwise.
This use of data for the euro area has some drawbacks such as the fact that the historical
data originates from the time prior to EMU when the member economies experienced di¤erent
monetary policy regimes and the possibility of aggregation bias (Beyer et al. 2001). There are,
in fact, two alternative approaches: (i) to construct separate models of the member economies
and link them to form a multi-country model of the euro area; and (ii) to start by aggregating
the relevant macroeconomic time series across member economies and then estimate a model
for the euro area as a whole. I follow the last approach, because the objectives and instruments
of Eurosystem monetary policy are de…ned in terms of aggregates for the euro area.9
The economic variables for the euro area are, therefore, computed by aggregating national
data using the irrevocable …xed exchange rates and for the period 1980:1-2007:4.
For the recursive partial identi…cation of the monetary policy shock (based upon the
work of Christiano et al., 2005), the variables in X1t –the ones predetermined with respect to
monetary policy innovations –are the net stock of housing wealth, NHWt, the producer price
index of raw materials, PPIRM
t , the real GDP, Yt, and the GDP de‡ator, Pt. The variables
in X2t –the ones allowed to react contemporaneously to monetary policy shocks –are the
growth rate of broad money, M3t