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Spillover of the ECB's monetary policy outside the euro area: How different is conventional from unconventional policy?

Oxana Babecká Kucharčuková, Peter Claeys () and Bořek Vašíček ()
Authors registered in the RePEc Author Service: Oxana Babecká-Kucharčuková

Journal of Policy Modeling, 2016, vol. 38, issue 2, 199-225

Abstract: This paper compares the macroeconomic impact of conventional and unconventional ECB policy actions on the euro area and its spillover to six EU countries outside the euro area (the Czech Republic, Denmark, Hungary, Poland, Sweden and the UK). The comparison is based on a synthetic index of overall euro area monetary conditions (MCI) obtained by factor analysis, and specifically on two sub-components of the MCI, one tracking the conventional and the other the unconventional policy of the ECB. A standard monetary VAR shows that the transmission of unconventional monetary policy in the euro area is quite different: prices react more quickly, but the response of output is delayed and weaker. A block-restricted VAR is then used to measure the spillover of ECB policy abroad. The importance of euro area monetary policy for macroeconomic developments is confirmed for all six countries. A conventional monetary shock affects inflation and output in largely the same way as within the euro area. Unconventional measures have generated a variety of responses. Overall, exchange rates respond rather quickly, the effect on the real economy is slow and limited (like in the euro area) and, in particular, inflation often remains unaffected.

Keywords: Monetary policy; ECB; Unconventional measures; VAR; Synthetic indicator (search for similar items in EconPapers)
JEL-codes: E58 F42 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Spillover of the ECB's Monetary Policy Outside the Euro Area: How Different is Conventional From Unconventional Policy? (2014) Downloads
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DOI: 10.1016/j.jpolmod.2016.02.002

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