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Macroeconomic consequences of different types of credit market disturbances and non-conventional monetary policy in the euro area

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  • Gert Peersman

    (Ghent University)

Abstract

I estimate the effects of different types of credit market disturbances on the euro area economy since the introduction of the euro, i.e. exogenous credit demand shocks, innovations to the credit multiplier (e.g. shocks to risk taking by banks, securitization or financial innovations such as credit risk transfer instruments) and monetary policy shocks. In a second step, monetary policy shocks are further decomposed into traditional interest rate innovations and non-conventional policy actions. Overall, the macroeconomic relevance is considerable. Credit market disturbances account together for more than half of output variation and up to 75 percent of long-run inflation variability. The majority of these effects are driven by shocks to the credit multiplier. I further show that the dynamic effects crucially depend on the underlying source of the disturbance. Whereas surges in credit caused by innovations to the credit multiplier have a significant positive impact on economic activity and inflation, exactly the opposite is the case for exogenous credit demand shocks. Finally, both types of monetary policy instruments can influence the economy. The ultimate consequences on output and consumer prices are however more sluggish for non-standard policy measures, and the transmission mechanism via financial institutions - very likely the risk-taking channel - is different.

Suggested Citation

  • Gert Peersman, 2011. "Macroeconomic consequences of different types of credit market disturbances and non-conventional monetary policy in the euro area," 2011 Meeting Papers 333, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:333
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    References listed on IDEAS

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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
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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