Monetary policy transmission over the leverage cycle: evidence for the euro area

Gerhard Rünstler () and Leonie Bräuer

No 2421, Working Paper Series from European Central Bank

Abstract: We study state dependence in the impact of monetary policy shocks over the leverage cycle for a panel of 10 euro area countries. We use a Bayesian Threshold Panel SVAR with regime classifications based on credit and house prices cycles. We find that monetary policy shocks trigger a smaller response of GDP, but a larger response of inflation during low states of the cycle. The shift in the inflation-output trade-off may result from higher macro-economic uncertainty in low leverage states. For an alternative regime classification based on turning points we find larger effects on GDP during contractions. JEL Classification: C32, E32, E44

Keywords: Bayesian Threshold Panel VAR; financial cycle; monetary policy (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Note: 339116
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202421

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