Investigating a measure of conventional and unconventional stimulus for the euro area

Arne Halberstadt and Leo Krippner

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We investigate the effect of the “Effective Monetary Stimulus” (EMS) on German and euro-area macroeconomic variables using a small-scale vector autoregression (VAR). The EMS is obtained from yield curve data and survey data, and is designed to reflect the influence of monetary policy conducted by conventional and unconventional means. Empirically, using the EMS in our VAR obtains plausible and stable structural relationships with inflation and economic activity across and within conventional and unconventional environments, and more so than short-maturity rates or alternative metrics. These results suggest that the EMS provides a useful practical measure of monetary/financial stimulus for policy makers. Our counterfactual results indicate that EMS shocks have been stimulatory for most of the time since 2007, and more so around episodes of unconventional policy actions by the ECB. In turn, these episodes have been followed by higher outcomes of inflation and economic activity.

Keywords: Monetary Policy; Zero Lower Bound; Dynamic Term Structure Model. (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2021-03
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2021-27

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