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SVARs, the central bank balance sheet and the effects of unconventional monetary policy in the euro area

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  • Adam Elbourne

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

This discussion paper presents further evidence that the most important published estimates of the effects of unconventional monetary policy are not reliable. It is a further elaboration of the ideas in the CPB discussion paper "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?". Previous empirical studies seem to show that the unconventional monetary policy of the ECB, also known as balance sheet policy, has a positive effect on growth and inflation. However, this conclusion is unfounded, because institutional features of monetary policy in the euro area make it impossible to identify unexpectedly exogenous variation in monetary policy. Read CPB Discussion Paper 391 "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?". VAR modeling shows the effects of unexpected exogenous variation in monetary policy, also known as policy shocks. This discussion paper presents a number of reasons why the existing literature is unable to isolate unexpected variation in monetary policy.

Suggested Citation

  • Adam Elbourne, 2019. "SVARs, the central bank balance sheet and the effects of unconventional monetary policy in the euro area," CPB Discussion Paper 407, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:407
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    Cited by:

    1. Martin Baumgärtner & Jens Klose, 2021. "Why central banks announcing liquidity injections is more effective than forward guidance," International Finance, Wiley Blackwell, vol. 24(2), pages 236-256, August.

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    More about this item

    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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