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Does one size fit all? The country-specific effects of ECB monetary policy

Deborah Gefang, Stephen G. Hall, George S. Tavlas and Yongli Wang

European Economic Review, 2025, vol. 175, issue C

Abstract: We investigate the way that a change in the ECB's monetary policy affects the members of the euro area in terms of the main macroeconomic aggregates – including inflation and output. Our data set consists of sixteen countries and covers the period from 2009 to 2023. We introduce a spatial VAR, which allows us to decouple the direct effects of a policy change from the spillover effects of the change. In contrast to standard spatial models, which use a predetermined spatial matrix, we estimate the spatial matrix endogenously, thus providing increased accuracy. We find generally symmetric reactions in inflation, output and the other main macro aggregates both in terms of the timing and the magnitude of shocks, and in the effects of shocks on the decomposition between direct and indirect (spillover) effects although there are occasional exceptions. We find that the indirect effects (spillover) effects are generally smaller than the direct effects but that in all cases they reinforce the direct effects.

Keywords: Monetary policy shocks; Euro area; Spatial effects (search for similar items in EconPapers)
JEL-codes: C31 C51 E52 E58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:175:y:2025:i:c:s0014292125000753

DOI: 10.1016/j.euroecorev.2025.105025

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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