Monetary Policy in the COVID Era and Beyond: the Fed vs the ECB

Carlo A. Favero and Ruben Fernandez-Fuertes

No 23209, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: This study examines monetary policy during and post-COVID by analysing innovative specifications for monetary policy rules based on data from before the pandemic. It models trends in short-term rates using a stochastic trend, driven by potential output growth, demographic age distribution, and inflation expectations both the US and the Eurozone. The cyclical variations in shortterm rates are associated with monetary policy through the conventional Taylor rule indicators. Whilst the standard model is robust for the US both in and outof- sample, the Eurozone displays less consistent in-sample results and marked deviations in out-of-sample tests. Addressing the ECB’s concerns about bond market fragmentation doesn’t yield better results. Instead, a model in which the ECB follows the US example with caution and delay proves more effective.

Keywords: Monetary Policy Rules; Trends and Cycles; Fed; ECB. (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
Pages: 28
Date: 2023
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repec.unibocconi.it/baffic/baf/papers/cbafwp23209.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:baf:cbafwp:cbafwp23209

Access Statistics for this paper

More papers in BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy Via Röntgen, 1 - 20136 Milano - Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Michela Pozzi ().