Monetary policy transmission over the leverage cycle: evidence for the euro area
Gerhard Rünstler and
Leonie Bräuer ()
No 2421, Working Paper Series from European Central Bank
We study state dependence in the impact of monetary policy shocks over the leverage cycle for a panel of 10 euro area countries. We use a Bayesian Threshold Panel SVAR with regime classifications based on credit and house prices cycles. We find that monetary policy shocks trigger a smaller response of GDP, but a larger response of inflation during low states of the cycle. The shift in the inflation-output trade-off may result from higher macro-economic uncertainty in low leverage states. For an alternative regime classification based on turning points we find larger effects on GDP during contractions. JEL Classification: C32, E32, E44
Keywords: Bayesian Threshold Panel VAR; financial cycle; monetary policy (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202421
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