Monetary Policy, the Composition of GDP, and Crisis Duration in Europe
Global Economic Review, 2016, Vol. 45, No. 2: 206-2019
24 Pages Posted: 31 Dec 2015 Last revised: 14 Jan 2017
Date Written: December 7, 2015
This paper analyzes the effects of changes in interest rates on the composition of production in ten European countries during the boom period of the 2000s. We find that output elasticity differs across industries and across countries for similar industries. The paper suggests that in the run-up to the 2008 crisis, the ECB’s low interest rate policy affected the allocation of resources across industries. This may explain the sluggish overall recovery from the crisis in Europe.
Keywords: Monetary Policy, Interest Rate Sensitivity, Crisis Duration, GDP Composition
JEL Classification: E32, E52, E58
Suggested Citation: Suggested Citation