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The macroeconomic effects of unconventional monetary policy: Comparing euro area and US models with shadow rates

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  • Hohberger, Stefan
  • Ratto, Marco
  • Vogel, Lukas

Abstract

This paper compares the macroeconomic effects of unconventional monetary policy (UMP) measures in the euro area (EA) and the United States (US) in a unified framework. Using shadow-rate estimates to characterise the overall stance of monetary policy, we estimate a large-scale 3-region (EA, US, RoW) DSGE model with data for 1999q1–2019q4, and we perform counterfactual simulations (no UMP) with the short-term policy rate at the effective lower bound (ELB). We find that contributions of UMP to output growth and inflation have the same orders of magnitude in the EA and US (0.1–0.4 pp p.a. for real GDP growth; 0.2–0.7 pp p.a. for CPI inflation). The counterfactual suggests that EA output and price levels would have been 3.4% and 6.7% below actual levels in 2020q4 in the absence of UMP. The earlier and stronger rebound of activity and prices in the US led to US monetary policy normalisation already during 2016–2019.

Suggested Citation

  • Hohberger, Stefan & Ratto, Marco & Vogel, Lukas, 2023. "The macroeconomic effects of unconventional monetary policy: Comparing euro area and US models with shadow rates," Economic Modelling, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:ecmode:v:127:y:2023:i:c:s026499932300250x
    DOI: 10.1016/j.econmod.2023.106438
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    References listed on IDEAS

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    More about this item

    Keywords

    Unconventional monetary policy; DSGE; Shadow rate; Bayesian model estimation;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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