Working Paper: CEPR ID: DP8348
Authors: Gert Peersman
Abstract: I estimate the dynamic effects of respectively traditional interest rate innovations and unconventional monetary policy actions on the Euro area economy. The results show that the Eurosystem can stimulate the economy beyond the policy rate by increasing the size of its balance sheet. The ultimate consequences on output and consumer prices are however more sluggish compared to interest rate innovations. Furthermore, the transmission mechanism via financial institutions - very likely the risk-taking channel - turns out to be different.
Keywords: SVARs; Unconventional Monetary Policy
JEL Codes: C32; E30; E44; E51; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| traditional interest rate innovations (E43) | economic activity (E20) |
| unconventional monetary policy actions (E52) | economic activity (E20) |
| traditional interest rate innovations (E43) | consumer prices (P22) |
| unconventional monetary policy actions (E52) | consumer prices (P22) |
| 25 basis points decline in the policy rate (E43) | economic activity (E20) |
| 10 percent increase in the monetary base (E52) | economic activity (E20) |
| unconventional policy actions (E49) | bank interest rate spreads (E43) |
| expansionary interest rate innovation (E43) | bank interest rate spreads (E43) |
| unconventional monetary policy actions (E52) | size of the balance sheet of the Eurosystem (E58) |
| banking sector's risk-taking behavior (G21) | effectiveness of unconventional measures (E65) |