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Investigating a measure of conventional and unconventional stimulus for the euro area

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  • Arne Halberstadt
  • Leo Krippner

Abstract

We investigate the effect of the “Effective Monetary Stimulus” (EMS) on German and euro-area macroeconomic variables using a small-scale vector autoregression (VAR). The EMS is obtained from yield curve data and survey data, and is designed to reflect the influence of monetary policy conducted by conventional and unconventional means. Empirically, using the EMS in our VAR obtains plausible and stable structural relationships with inflation and economic activity across and within conventional and unconventional environments, and more so than short-maturity rates or alternative metrics. These results suggest that the EMS provides a useful practical measure of monetary/financial stimulus for policy makers. Our counterfactual results indicate that EMS shocks have been stimulatory for most of the time since 2007, and more so around episodes of unconventional policy actions by the ECB. In turn, these episodes have been followed by higher outcomes of inflation and economic activity.

Suggested Citation

  • Arne Halberstadt & Leo Krippner, 2021. "Investigating a measure of conventional and unconventional stimulus for the euro area," CAMA Working Papers 2021-27, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-27
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-03/27_2021_halberstadt_krippner.pdf
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    More about this item

    Keywords

    Monetary Policy; Zero Lower Bound; Dynamic Term Structure Model.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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