Disentangling the effects of multidimensional monetary policy on inflation and inflation expectations in the euro area

Catalina Martínez-Hernández

No 2020/18, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: The European Central Bank (ECB) has adopted a mixture of conventional and unconventional tools in order to achieve its mandate of price stability in the current low-inflation, low-interest-rate scenario. This paper contributes to the existing literature by providing a taxonomy of the ECB's policy toolkit and by evaluating its implications on price stability and the anchoring of inflation expectations. I carry out my analysis based on a high-frequency identification and the estimation of a large Bayesian Vector Autoregression. I find evidence of re-anchored expectations as response to quantitative easing and forward guidance, i.e. forecasters revise their long-run expectations upwards. Consequently, inflation increases, which stresses the crucial role of expectations for the transmission of monetary policy.

Keywords: Inflation Expectations; Monetary Policy; Large BVAR; High-frequency identification (search for similar items in EconPapers)
JEL-codes: C11 C32 C55 E31 E52 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:202018

DOI: 10.17169/refubium-28493

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