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The effects of unconventional monetary policy in the euro area

Author

Listed:
  • Adam Elbourne

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Kan Ji
  • Sem Duijndam

Abstract

How effective are unconventional monetary policies? Through which mechanisms do they work? Central banks have been conducting monetary policy through unconventional means such as expanding their balance sheets or forward guidance because the conventional instrument of monetary policy, the short-term policy rate, has been at or close to the zero lower bound since shortly after the fall of Lehmann Brothers. These unconventional monetary policies are new and bring with them many questions, which were addressed in the CPB policy brief ‘Onderweg naar normaal monetair beleid’ [CPB policy brief 2017/07, 8 June 2017]. Understanding how and why unconventional monetary policy works is a crucial first step for answering subsequent questions, such as the likely effects of the withdrawal of unconventional monetary policy, or about how domestic policy makers can best respond. This discussion paper contains a detailed presentation of the new scientific evidence we reported in the policy brief, and adds to the relatively scarce literature in this field We estimate the effects of unconventional monetary policy shocks on output and inflation in the euro area using data from 2009 to 2016, which covers the period of all of the major unconventional monetary policies that the ECB has used. We employ a two stage estimation strategy: first, we identify unconventional monetary policy shocks in a dedicated euro area level structural vector autoregression (SVAR) model. Subsequently we use these unconventional monetary policy shocks in country level models. By estimating the effects of unconventional monetary policy shocks in the individual countries of the euro area, we aim to shed some light on the most important transmission mechanisms through which unconventional monetary policy works.

Suggested Citation

  • Adam Elbourne & Kan Ji & Sem Duijndam, 2018. "The effects of unconventional monetary policy in the euro area," CPB Discussion Paper 371, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:371
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    Cited by:

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    2. Andrea Colabella, 2019. "Do the ECB’s monetary policies benefit emerging market economies? A GVAR analysis on the crisis and post-crisis period," Temi di discussione (Economic working papers) 1207, Bank of Italy, Economic Research and International Relations Area.
    3. Aßhoff, Sina & Belke, Ansgar & Osowski, Thomas, 2021. "Unconventional monetary policy and inflation expectations in the Euro area," Economic Modelling, Elsevier, vol. 102(C).
    4. İshak Demi̇r & Burak A. Eroğlu & Seçi̇l Yildirim‐Karaman, 2022. "Heterogeneous Effects of Unconventional Monetary Policy on the Bond Yields across the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(5), pages 1425-1457, August.
    5. Lehment, Harmen, 2018. "Fiscal implications of the ECB's public sector purchase programme (PSPP)," Kiel Working Papers 2107, Kiel Institute for the World Economy (IfW Kiel).
    6. Pagliari, Maria Sole, 2024. "Does one (unconventional) size fit all? Effects of the ECB’s unconventional monetary policies on the euro area economies," European Economic Review, Elsevier, vol. 168(C).
    7. Dominguez-Torres, Helena & Hierro, Luis Ángel, 2020. "Are there monetary clusters in the Eurozone? The impact of ECB policy," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 56-76.
    8. Rémi Odry & Roman Mestre, 2021. "Monetary Policy and Business Cycle Synchronization in Europe," Working Papers hal-04159759, HAL.
    9. Sofya Kolesnik & Elizaveta Dobronravova, 2022. "Modelling the Effects of Unconventional Monetary Policy in a Heterogeneous Monetary Union," Russian Journal of Money and Finance, Bank of Russia, vol. 81(1), pages 3-22, March.
    10. Sleibi, Yacoub & Casalin, Fabrizio & Fazio, Giorgio, 2023. "Unconventional monetary policies and credit co-movement in the Eurozone," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    11. Machiel van Dijk & Andrei Dubovik, 2018. "Effects of Unconventional Monetary Policy on European Corporate Credit," CPB Discussion Paper 372, CPB Netherlands Bureau for Economic Policy Analysis.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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