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This paper provides an assessment of monetary policy transmission in France based
on the new model for France of the Banque de France (FR-BDF). This new model
has several features useful for such a purpose: a detailed financial block, the presence
of a large set of frictions and the possibility to switch from model-consistent to VARbased
expectations. For standard monetary policy shocks, we show that, when nonfinancial
agents form their expectations with a small VAR, impulse responses of GDP
and inflation are more dampened than under model-consistent expectations. For shocks
on term premia and on exchange rates, one striking feature is the faster response of
inflation under model-consistent expectations. When we look at actual shocks on such
monetary and financial variables due to unconventional policies implemented between
2015 and 2018, we find that these policies had notable effects, with a stronger role
of exchange rates than term premia or the short-term rate. When we assume modelconsistent
expectations, we find that the effects on inflation would be much greater
than in the VAR case.
