Monetary Policy Uncertainty and its impact on the real economy: Empirical Evidence from the Euro area

João Quelhas

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we construct a proxy for uncertainty that tracks monetary policy in the Euro area by text-mining thousands of newspaper articles in the press. We calibrate a nonlinear interacted vector autoregression model to study the impact of monetary policy uncertainty on the real economy and on the effectiveness of monetary policy. We find that higher uncertainty leads to a contraction in economic activity, with a higher dampening effect in uncertain times. Uncertainty also influences how strongly movements in the policy rate affect output, investment and consumption as, in uncertain times, average responses are up to three times less powerful than in tranquil times.

Keywords: Monetary Policy; Uncertainty; Euro Area; Textual Analysis; SEIVAR Model (search for similar items in EconPapers)
JEL-codes: E32 E40 E50 E52 (search for similar items in EconPapers)
Date: 2022-05, Revised 2022-05
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:113621

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