On the sources of macroeconomic stability in the euro area

Sanvi Avouyi-Dovi and Jean-Guillaume Sahuc

Working papers from Banque de France

Abstract: In the mid-1990s the euro area experienced a change in macroeconomic volatility. Around the same time, at business cycle frequencies the correlation between inflation and money growth changed markedly, turning from positive to negative. Distinguishing the periods pre- and post-1994, we estimate a dynamic stochastic general equilibrium model with money for the euro area. The model accounts for the salient facts. We then perform several counterfactual exercises to assess the drivers of these phenomena. The moderation of real variables was essentially due to relatively smaller shocks to investment, wage markups and preferences. The apparent lack of evidence for the quantity theory of money in the short run and the changes in the volatility of nominal variables resulted primarily from a more anti-inflationary and gradual monetary policy.

Keywords: Macroeconomic volatility; quantity theory of money; monetary policy; DSGE model; euro area. (search for similar items in EconPapers)
JEL-codes: E32 E51 E52 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2015
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
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Related works:
Journal Article: On the sources of macroeconomic stability in the euro area (2016)
Working Paper: On the Sources of Macroeconomic Stability in the Euro Area (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:577

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