Monetary Policy Transmission Over the Leverage Cycle: Evidence for the Euro Area

56 Pages Posted: 17 Jun 2020

See all articles by Gerhard Rünstler

Gerhard Rünstler

European Central Bank

Leonie Bräuer

University of Geneva; Swiss Finance Institute, Students

Date Written: June, 2020


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.

Keywords: Bayesian Threshold Panel VAR, financial cycle, monetary policy

JEL Classification: C32, E32, E44

Suggested Citation

Rünstler, Gerhard and Bräuer, Leonie, Monetary Policy Transmission Over the Leverage Cycle: Evidence for the Euro Area (June, 2020). ECB Working Paper No. 20202421, Available at SSRN: or

Gerhard Rünstler (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Leonie Bräuer

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205

Swiss Finance Institute, Students ( email )

c/o University of Geneva
42, Bd du Pont d'Arve
Geneva, CH-1211

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