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Spillover of the ECB's monetary policy outside the euro area: How different is conventional from unconventional policy?

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  • Babecká Kucharčuková, Oxana
  • Claeys, Peter
  • Vašíček, Bořek

Abstract

This paper compares the macroeconomic impact of conventional and unconventional ECB policy actions on the euro area and its spillover to six EU countries outside the euro area (the Czech Republic, Denmark, Hungary, Poland, Sweden and the UK). The comparison is based on a synthetic index of overall euro area monetary conditions (MCI) obtained by factor analysis, and specifically on two sub-components of the MCI, one tracking the conventional and the other the unconventional policy of the ECB. A standard monetary VAR shows that the transmission of unconventional monetary policy in the euro area is quite different: prices react more quickly, but the response of output is delayed and weaker. A block-restricted VAR is then used to measure the spillover of ECB policy abroad. The importance of euro area monetary policy for macroeconomic developments is confirmed for all six countries. A conventional monetary shock affects inflation and output in largely the same way as within the euro area. Unconventional measures have generated a variety of responses. Overall, exchange rates respond rather quickly, the effect on the real economy is slow and limited (like in the euro area) and, in particular, inflation often remains unaffected.

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  • Babecká Kucharčuková, Oxana & Claeys, Peter & Vašíček, Bořek, 2016. "Spillover of the ECB's monetary policy outside the euro area: How different is conventional from unconventional policy?," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 199-225.
  • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:2:p:199-225
    DOI: 10.1016/j.jpolmod.2016.02.002
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    Keywords

    Monetary policy; ECB; Unconventional measures; VAR; Synthetic indicator;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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