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