Unconventional monetary policy in the Euro Area: Shadow rate and light effets |
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| Affiliation: | 1. Department of Finance, ESCP Business School, Paris, France;2. Economix, University Paris-Nanterre, Nanterre, France;3. Economix, University Paris 2 ASSAS, Paris, France;1. Wilfrid Laurier University, Waterloo, Canada;2. International Monetary Fund and Waikato University, Hamilton, New Zealand;3. Reserve Bank of New Zealand and Waikato University, Hamilton, New Zealand;1. University of Notre Dame and NBER, United States;2. PBC School of Finance, Tsinghua University, China |
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| Abstract: | We assess transmission mechanisms and the macroeconomic impact of unconventional monetary policy (UMP) in the Euro Area. We estimate a FAVAR model and use a shadow rate to measure the stance of the monetary policy. The ECB's UMP measures adopted at the zero lower bound (ZLB) have sustained the real economy. For instance, in 2016, without UMP, investment would have been lower by 9%, consumption lower by 2% and the unemployment rate higher by 0.9%. However, the impact of unconventional monetary shocks is weaker and less persistent than those emanating from conventional monetary policy. Furthermore, the difference in the transmission of monetary policies between countries of the Euro Area was more pronounced during the period 2009-2016. This suggests that the ZLB has decreased the efficiency of monetary policy and accentuated the heterogeneity of the Euro Area. |
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