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Who’s afraid of euro area monetary tightening? CESEE shouldn’t

Author

Listed:
  • Geis, André
  • Moder, Isabella
  • Schuler, Tobias

Abstract

After a first phasing out of the ECB’s net asset purchases at end-2018, the question of how a future tightening of the ECB’s monetary policy may affect countries located in the vicinity of the euro area has gained prominence, but has been left largely unanswered so far. Our paper aims to close this gap for the CESEE region by employing shock-specific conditional forecasts, a methodology that has been little exploited in this context. Besides demonstrating the usefulness of our framework, we obtain three key findings characterising the spillovers of ECB monetary policy to CESEE economies: first, a euro area monetary tightening does trigger sizeable spillovers to the CESEE region. Second, we show that in the context of a demand shock-induced monetary tightening, which is more realistic than the usual approach taken in the literature, CESEE countries’ output and prices actually respond positively. Third, spillovers on output and prices in CESEE countries are heterogeneous, and depend on the trajectory of euro area tightening. JEL Classification: C11, C32, E52, F42

Suggested Citation

  • Geis, André & Moder, Isabella & Schuler, Tobias, 2020. "Who’s afraid of euro area monetary tightening? CESEE shouldn’t," Working Paper Series 2416, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20202416
    Note: 504004
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    BVAR; EU integration; international shock transmission; monetary policy;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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