Investigating a Measure of Conventional and Unconventional Stimulus for the Euro Area

54 Pages Posted: 3 Mar 2021

See all articles by Arne Halberstadt

Arne Halberstadt

Deutsche Bundesbank

Leo Krippner

Reserve Bank of New Zealand

Date Written: March 2, 2021

Abstract

Older version is available at: https://ssrn.com/abstract=2899670

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

JEL Classification: E43, E44, E52

Suggested Citation

Halberstadt, Arne and Krippner, Leo, Investigating a Measure of Conventional and Unconventional Stimulus for the Euro Area (March 2, 2021). CAMA Working Paper No. 27/2021, Available at SSRN: https://ssrn.com/abstract=3796552 or http://dx.doi.org/10.2139/ssrn.3796552

Arne Halberstadt

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Leo Krippner (Contact Author)

Reserve Bank of New Zealand ( email )

2 The Terrace
PO Box 2498
Wellington, 6140
New Zealand

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